Question

When Patey Pontoons issued 10% bonds on January 1, 2021, with a face amount of $880,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2024 (4 years). Interest is paid semiannually on June 30 and December 31. EV $1. PV of $1. EVA of $1. PVA $1. EVAD of S1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2021. 2. Prepare the journal entry to record their issuance by Patey on January 1, 2021. 3. Prepare an amortization schedule that determines interest at the effective rate each period. 4. Prepare the journal entry to record interest on June 30, 2021. 5. What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2021? 6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2021? (Ignore income taxes.) 7. Prepare the appropriate journal entries at maturity on December 31, 2024. Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Reg 3 Req4 Reg 5 and 6 Req 7 Determine the price of the bonds at January 1, 2021. (Round final answers to the nearest whole dollar.) Table values are based on: Cash Flow 5.5 % Amount 44,000 Present Value Interest 44 000 Principal Price of bonds

Answer 1

Solution 1:

Chart Values are based on:
n= (4 Years*2)	8	Half years
i= (11%/2)	5.50%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.65160	*	$880,000	=	$573,408
Interest (Annuity) [$880,000*10%*6/12]	6.33457	*	$44,000	=	$278,721
Price of Bonds					$852,129

Solution 2:

Patey Pontoons
Journal Entries
Date	Particulars	Debit	Credit
01-Jan-21	Cash A/c Dr	$852,129
	Discount on Bond Payable	$27,871
	To bonds payable		$880,000
	(Being bond issued at Discount)

Solution 3:

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Discount amortization	Unamortized discount	Carrying value
01-Jan-21				$27,871	$852,129
30-Jun-21	$44,000	$46,867	$2,867	$25,004	$854,996
31-Dec-21	$44,000	$47,025	$3,025	$21,979	$858,021
30-Jun-22	$44,000	$47,191	$3,191	$18,788	$861,212
31-Dec-22	$44,000	$47,367	$3,367	$15,421	$864,579
30-Jun-23	$44,000	$47,552	$3,552	$11,869	$868,131
31-Dec-23	$44,000	$47,747	$3,747	$8,122	$871,878
30-Jun-24	$44,000	$47,953	$3,953	$4,169	$875,831
31-Dec-24	$44,000	$48,169	$4,169	$0	$880,000

Solution 4:

Journal Entries
Date	Particulars	Debit	Credit
30-Jun-21	Interest Expense Dr	$46,867
	To Discount on bond payable		$2,867
	To Cash		$44,000
	(To record Interest on June 30, 2021)

Solution 5:
Bonds reported on December 31, 2021 =		858021
Solution 6:
Interest expense to be reported in Income statement =		93892
Solution 7:
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-24	Interest Expense Dr	$48,169
	To Discount on bond payable		$4,169
	To Cash		$44,000
31-Dec-24	Bond Payable Dr	$880,000
	To Cash		$880,000