On January 1, 2018, Instaform, Inc., issued 10% bonds with a face amount of $53 million,...
On January 1, 2018, Instaform, Inc., issued 10% bonds with a
face amount of $53 million, dated January 1. The bonds mature in
2037 (20 years). The market yield for bonds of similar risk and
maturity is 12%. Interest is paid semiannually. (FV of $1, PV of
$1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use
appropriate factor(s) from the tables provided.)
Required:
1-a. Determine the price of the bonds at January 1,
2018.
1-b. Prepare the journal entry to record their
issuance by Instaform.
2-a. Assume the market rate was 9%. Determine the
price of the bonds at January 1, 2018.
2-b. Assume the market rate was 9%. Prepare the
journal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased the
entire issue in a private placement of the bonds. Using the data in
requirement 2, prepare the journal entry to record the purchase by
Broadcourt.
Homework Answers
1-a. Determine the price of the bonds at January 1, 2018.
Present value of interest= $53000000*10%*6/12*15.04630= $39872695
Present value of Principal= $53000000*0.09722= $5152660
Present value of bonds= Present value of Principal+Present value of interest
= $5152660+39872695= $45025355
1-b. Prepare the journal entry to record their issuance by Instaform.
| Date | Account titles and explanation | Debit | Credit |
| January 1, 2018 | Cash | $45025355 | |
| Discount on bonds payable (53000000-45025355) | $7974645 | ||
| Bonds payable | $53000000 | ||
| (To record issuance of bonds) |
2-a. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2018.
Present value of interest= $53000000*10%*6/12*18.40158= $48764187
Present value of Principal= $53000000*0.17193= $9112290
Present value of bonds= Present value of Principal+Present value of interest
= $9112290+48764187= $57876477
2-b. Assume the market rate was 9%. Prepare the journal entry to record their issuance by Instaform.
| Date | Account titles and explanation | Debit | Credit |
| January 1, 2018 | Cash | $57876477 | |
| Premium on bonds payable (57876477-53000000) | $4876477 | ||
| Bonds payable | $53000000 | ||
| (To record issuance of bonds) |
3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.
| Date | Account titles and explanation | Debit | Credit |
| January 1, 2018 | Investment in bonds | $53000000 | |
| Premium on bonds (57876477-53000000) | $4876477 | ||
| Cash | $57876477 | ||
| (To record purchase of bonds) |
Present value of interest= $53000000*10%*6/12*18.40158= $48764187
Present value of Principal= $53000000*0.17193= $9112290
Present value of bonds= Present value of Principal+Present value of interest
= $9112290+48764187= $57876477
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