Question

Please help me complete part 2.

Part 1: / do Davis Company issued 10% annual rate, face value S600.000 bonds dated January 1, 20X3 on May 1, 20X3 to yield 8% annual market interest rate. The bonds pay interest every June 30 and December 31 and mature December 31, 20X7. Assume the effective interest method. Required: A. Calculate the issue price of the bonds and set up an amortization schedule. B. Prepare the journal entries for the issuance and the first and second interest payments C. Assume that after the second interest payment Davís bought back 40% of its bonds in the open market and retired them at a price of 98% of face value, what would be the journal entry for the buy back? Part 2: Assume the same information as in Part 1, except the bonds were issued on January 1, 20X3 and annual market interest rate is 12% . The bonds pay interest every June 30 and December 31 and mature December 31, 20X7. Assume the effective interest method Required: A. Calculate the issue price of the bonds and set up an amortization schedule B. Prepare the journal C. Assume that after the third interest payment Davis bought back the bonds in the open market and retired I entries for the issuance and the first, second, and third interest payments them at a price of 102% of face value, what would be the journal entry for the buy back?

Answer 1

Req A:
Maturity value of bonds					600000
Semi Annual cash interest (600000*10%*6/12)					30000
Annuity PVf at 6% for 10 periods					7.36009
PVF at 6% for10th period					0.558395
Present value of maturity value of bonds					335037
Present value of interest					220802.7
Issue Price of bonds					555840
Amort Chart:
Date	Cash	Interest	Discount	Unamortized	Carrying
	payment	expenses	Amortized	Discount	Value of bonds
01.01.03				44160	555840
30.06.13	30000	33350.4	3350.4	40809.6	559190.4
31.12.03	30000	33551.42	3551.424	37258.18	562741.8
30.06.04	30000	33764.51	3764.509	33493.67	566506.3
31.12.04	30000	33990.38	3990.38	29503.29	570496.7
30.06.05	30000	34229.8	4229.803	25273.48	574726.5
31.12.05	30000	34483.59	4483.591	20789.89	579210.1
30.06.06	30000	34752.61	4752.606	16037.29	583962.7
31.12.06	30000	35037.76	5037.763	10999.52	589000.5
30.06.07	30000	35340.03	5340.029	5659.495	594340.5
31.12.07	30000	35660.43	5660.43	-0.93537	600000.9
Req B:
Journal entries:
Date	Accounts title and explanation				Debit $	Credit $
01.01.03	Cash account				555840
	Discount on bonds payable				44160
	Bonds payable					600000
	(for bonds issued at discount)
30.06.03	Interest expenses				33350.4
	Cash account					30000
	Discount on bonds payable					3350.4
	(For interest payment and discount amortized)
31.12.03	Interest expenses				33551.42
	Cash account					30000
	Discount on bonds payable					3551.42
	(For interest payment and discount amortized)
30.06.04	Interest expenses				33764.51
	Cash account					30000
	Discount on bonds payable					3764.51
	(For interest payment and discount amortized)
Req C:
Book value after third interest payment i.e. on 30.06.04						566506.3
Redemption value of bonds (600000*102%)						612000
Loss on retirement						45493.7
Journal entries:
Date	Accounts title and explanation				Debit $	Credit $
30.06.04	Bonds payable				600000
	Loss on retirement Account				45493.7
	Cash account					612000
	Discount on bonds payable					33493.7