Question

National Orthopedics Co. issued 8% bonds, dated January 1, with a face amount of $600,000 on January 1, 2021. The bonds mature on December 31, 2024 (4 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31. (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. Determine the price of the bonds at January 1, 2021. 2. Prepare the journal entry to record their issuance by National 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. Prepare the appropriate journal entries at maturity on December 31, 2024. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Determine the price of the bonds at January 1, 2021. (Round final answers to the nearest whole dollar.) Table values are based on: Amount Present Value Cash Flow Interest Principal Price of bonds < Required 1 Required 2 >

Answer 1

1. Calculation of price of 8% Bond as on 1st January, 2021
Years	Particulars	Cash Flow	Discounting factor @5%	Discounted Cash flow ($)
1 to 8 (semi-annual	Interest	24000	6.4632	155,117.11
8	Principal	600000	0.6768	406,103.62
Present Value of Bond	561,220.72

2. Journal Entry at the time of issue of 8% Bond, Face value$600000 at $561220.72
Date	Particulars	Debit $	Credit    $
2021	Bank account                                    Dr	561220.72
Jan 1st	Discount on Bond Payable            Dr	38779.28
	To 8% Bond Payable		600000
	( Being 8% Bond with a Face value of $600000 issued at a discount of 38779.28 for 4years)

3. Amortisation Table that determines interest at the effective rate at each period (Value in $)
A	B	C	D	E	F	G
Semi- annual interest period- End	Interst payment= 4% * Face value	Market Rate 5%* Previous Bond value in G	Amortisation of Bond Disconut = C-B	Debit balance of Discount on Bond payable account	Credit Balance in Bond Payable Account	Book Value/Carrying value of Bond = F-E
	Cash Interest	Bond Interest Expense	Discount Amortisation
01-01-21				38,779.28	600,000.00	561,220.72
30-06-21	24,000.00	28,061.04	4,061.04	34,718.24	600,000.00	565,281.76
31-12-21	24,000.00	28,264.09	4,264.09	30,454.16	600,000.00	569,545.84
30-06-22	24,000.00	28,477.29	4,477.29	25,976.86	600,000.00	574,023.14
31-12-22	24,000.00	28,701.16	4,701.16	21,275.71	600,000.00	578,724.29
30-06-23	24,000.00	28,936.21	4,936.21	16,339.49	600,000.00	583,660.51
31-12-23	24,000.00	29,183.03	5,183.03	11,156.47	600,000.00	588,843.53
30-06-24	24,000.00	29,442.18	5,442.18	5,714.29	600,000.00	594,285.71
31-12-24	24,000.00	29,714.29	5,714.29	-	600,000.00	600,000.00
Totals	192,000.00	230,779.27	38,779.28

4. Journal Entry to record interest on June 30, 2021
Date	Particulars	Debit $	Credit    $
2021	Interest Expenses                            Dr	28061
Jun 30th	To Discount on Bond Payable		4061
	To Bank account		24000
	( Interest paid for 6 months and amortisation of discount on issue of 8% Bond)

5. Journal Entry to record interest on Dec 31, 2024
Date	Particulars	Debit $	Credit    $
2024	Interest Expenses                            Dr	29714
Dec 31st	To Discount on Bond Payable		5714
	To Bank account		24000
	( Interest paid for 6 months and amortisation of discount on issue of 8% Bond)
	8% Bond Payable                             Dr	600000
	To Bank account		600000
	( Redeemed 8% Bond on maturity)