Question

National Orthopedics Co. issued 11% bonds, dated January 1, with a face amount of $700,000 on January 1, 2021. The bonds mature on December 31, 2024 (4 years). For bonds of similar risk and maturity the market yield was 12%. 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. rest on Juneinterest at the January 1, 2021. 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: 8 6.0% Cash Flow Amount Present Value Interest Principal Price of bonds

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	8
i=	6.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.62741	$700,000.00	$439,187
Interest (Annuity)	6.20979	$38,500.00	$239,077
Price of bonds			$678,264

solution 2:

Journal Entries - National Orthopedics
Date	Particulars	Debit	Credit
1-Jan-21	Cash Dr	$678,264.00
	Discount on issue of bond Dr	$21,736.00
	To Bond Payable		$700,000.00
	(To record issue of bond at discount)

Solution 3:

Bond Amortization Schedule
Period	Cash Paid	Interest Expense	Discoount Amortized	Unamortized Discount	Carrying Value
1-Jan-21				$21,736	$678,264
30-Jun-21	$38,500	$40,696	$2,196	$19,540	$680,460
31-Dec-21	$38,500	$40,828	$2,328	$17,213	$682,787
30-Jun-22	$38,500	$40,967	$2,467	$14,745	$685,255
31-Dec-22	$38,500	$41,115	$2,615	$12,130	$687,870
30-Jun-23	$38,500	$41,272	$2,772	$9,358	$690,642
31-Dec-23	$38,500	$41,439	$2,939	$6,419	$693,581
30-Jun-24	$38,500	$41,615	$3,115	$3,304	$696,696
31-Dec-24	$38,500	$41,804	$3,304	$0	$700,000

solution 4:

Journal Entries - National Orthopedics
Date	Particulars	Debit	Credit
30-Jun-21	Interest expense Dr	$40,696.00
	To Discount on issue of bond		$2,196.00
	To Cash		$38,500.00
	(To record interest expense and discount amortization)

Solution 5:

Journal Entries - National Orthopedics
Date	Particulars	Debit	Credit
31-Dec-24	Interest expense Dr	$41,804.00
	To Discount on issue of bond		$3,304.00
	To Cash		$38,500.00
	(To record interest expense and discount amortization)
31-Dec-24	Bond Payable Dr	$700,000.00
	To Cash		$700,000.00
	(To record repayment at maturity)