Question

Please show your work/calculations/etc., where applicable 1. Slacker Co. decided to raise $1,000,000 through a bond issue. These mature in 10 years and the associated coupon rate for the annual interest 7.0%. If the market rate is 8%, what price would we expect Table B.1 and 8.3) issue. These bonds will al Interest payments is we would we expect for these bonds? (Hints I'f TOURS annually ,000,000 1,000,000X 5083- 508,300 the bond issue in the previous 2. Please prepare the Slacker Co. journal entry to reflect the bond issue question. Cash bonds payade 3. If the market rate in question #1 was 6.0%, what price would we expect for these bonds? (Hint: use Table B.1 and B.3) 4. Please prepare the Slacker Co. journal entry to reflect the bond issue in the previous question.

Answer 1

В2 1 В A C D Е F G н I K L м 1 face value of bonds $1,000,000 $1,000,000 face value of bonds 2 1 3 table factor (6%, 10 periods) table factor (8%, 10 periods) 0.5584 3 0.4632 $463,200 $558,400 present value of redemption value of bonds present value of redemption value of bonds 4 5 annual coupon payment table factor (6%, 10 periods) present value of annual coupon payment $ 70,000 annual coupon payment table factor (8%, 10 periods present value of annual coupon payment $70,000 6 7 6.7101 7.3601 $469,707 $515,207 = 9 $463,200 $469,707 present value of redemption value of bonds present value of annual coupon payment $558,400 $515,207 present value of redemption value of bonds present value of annual coupon payment 10 11 $932,907 $1,073,607 issue price of bonds issue price of bonds 12 13 account titles and explanation account titles and explanation debit debit credit credit 14 2 4 15 cash discount on bonds payable cash bonds payable $932,907 $1,073,607 16 $67,093 $1,000,000 17 bonds payable (to record issue of bonds payable) $1,000,000 premium on bonds payable (to record issue of bonds payable) $73,607 18 19 20 21.

for formulas and calculations, refer to the image below -

B2. 1 B C А D Е F G HI K L М - 1000000 2 face value of bonds 3 face value of bonds - 1000000 1 -ROUND(-PV(8%, 10,0,1) ,4) -ROUND(-PV(6% , 10,0,1) ,4) table factor (8%, 10 periods) table factor (6%, 10 periods) present value of redemption value of bonds K2*K3 3 present value of redemption value of bonds-E2*E3 4 5 -E2*7% annual coupon payment annual coupon payment -К2*7% 6 =ROUND(-PV(8%, 10, 1,0) ,4) - E6*E7 table factor (8%, 10 periods) table factor (6%, 10 periods) |=ROUND(-PV(6 % ,10,1,0),4) 7 present value of annual coupon payment present value of annual coupon payment K6*K7 8 = present value of redemption value of bonds E4 present value of annual coupon payment 10 present value of redemption value of bonds K4 -E8 present value of annual coupon payment K8 11 - K10+K11 E10+E11 issue price of bonds issue price of bonds 12 13 account titles and explanation account titles and explanation 14 debit credit 4 debit 2 credit 15 cash cash =E12 16 ЕК12 discount on bonds payable bonds payable (to record issue of bonds payable) bonds payable EF18- E16 K2 17 premium on bonds payable (to record issue of bonds payable) -K16- L17 18 -E2 19 20 21

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