Question

On January 1, 2018, Blshop Company Issued 8 % bonds dated January 1, 2018, with a face amount of $20.7 million. The bonds mature In 2027 (10 years). For bonds of similar risk and maturity, the market yleld Is 10 %. Interest Is pald semlannually 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 appropriete factor(s) from the tables provided. Round your intermedilate calculations to the nearest whole dollar.) Required: 1. Determine the price of the bonds at January 1, 2018. 2. Prepare the Journal entry to record the bond Issuance by Blshop on January 1, 2018 3. Prepare the joumal entry to record Interest on June 30, 2018, using the effective Interest method. 4. Prepare the journal entry to record Interest on December 31, 2018, using the effective Interest method.

Answer 1

B12 1 x fc 2 AB H i face value of bonds semiannual interest payment semiannual market interest rate table factor present value of semiannual interest payments redemption value table factor present value of redemption value price of the bonds at January 1, 2018 $ 20,700,000 $ 828,000 5% 12.46221 $ 10,318,710 $ 20,700,000 0.37689 $ 7,801,623 $ 18,120,333 | 2 date account titles and explanation debit credit January 1, 2018 $ 18,120,333 $ 2,579,667 cash discount on bonds payable bonds payable (issue of bonds payable recorded) $ 20,700,000

B28 ДА В с E F H amortization schedule using effective interest method interest expense interest payment discount amortization date January 1, 2017 June 30, 2018 December 31, 2018 carrying value $ 18,120,333 $ 18,198,350 $ 18,280,268 $ 906,017 $ 909,918 $ 828,000 $ 828,000 $ 78,017 $81,918 no. date account titles and explanation debit credit | 31 June 30, 2017 $ 906,017 interest expense discount on bonds payable cash (interest expense recorded) $ 78,017 $ 828,000 $ 909,918 December 31, 2017 interest expense discount on bonds payable cash (interest expense recorded) $ 81,918 $ 828,000

for formulas and calculations, refer to the image below -

B12 E H face value of bonds =20700000 semiannual interest payment =E2*8%/2 semiannual market interest rate =10%/2 table factor =ROUND(-PV(5%,20,1),5) present value of semiannual interest payments =ROUND(E3*E5,0) redemption value =E2 table factor =ROUND(-PV(5%,20,0,1),5) present value of redemption value =ROUND(E7*E8,0) price of the bonds at January 1, 2018 =E6+E9 2 date account titles and explanation debit credit January 1, 2018 =E10 =F16-E14 cash discount on bonds payable bonds payable (issue of bonds payable recorded)

B28 - X fa 3 в с E amortization schedule using effective interest method date interest expense interest payment January 1, 2017 June 30, 2018 =ROUND(G22*$E$4,0) =$E$3 December 31, 2018 =ROUND(G23*$E$4,0) =$E$3 discount amortization carrying value =E10 =D23-E23 =G22+F23 =D24-E24 =G23+F24 no. date account titles and explanation debit debit credit 31 June 30, 2017 =D23 interest expense discount on bonds payable cash (interest expense recorded) =F23 =E28-F29 4 =D24 =F24 December 31, 2017 interest expense discount on bonds payable cash (interest expense recorded) =E33-F34

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