Question

National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $750,000 on January 1, 2013. The bonds mature on December 31, 2016 (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, 2013. Table values are based on: Cash Flow Amount Present Value Interest Principal Price of bonds

2.	Prepare the journal entry to record their issuance by National on January 1, 2013. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)
	4. Prepare the journal entry to record interest on June 30, 2013. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)
5.	Prepare the appropriate journal entries at maturity on December 31, 2016. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

Answer 1

	CALCULATION OF THE VALUE OF THE BOND INTEREST IS PAID SEMI ANNUALLY
	Step 1 : Calculation of Semi Annual Coupon Payments
	Par value of the bond issued is   =			$7,50,000
	Annual Coupon %			9.00%
	Annual Coupon Amount			$67,500
	Semi Annual Coupon Amount			$33,750
	N =	10%	Half Yearly = 10% / 2 = 5%
	Period	1	2	3	$4	5	6	7	8	Total
	I= PVF of 1 $ @ 5%	0.95238	0.90703	0.86384	0.82270	0.78353	0.74622	0.71068	0.67684	6.46321
	OR		Cumulative value of $ 1 @ 10 % in 4 Years
	Interest	$33,750.00	6.4632	2,18,133.43
	Par Value at 30th Period	$7,50,000	0.6768	5,07,629.52
	Current Bonds Price			7,25,762.95
Answer = 2)
Schedule
	Date	Interest payment on face value	Interest Expenses (Cash paid - Decrease in Carrying value)	Amortization Discount expenses	Debit Balance in bond discount	Credit Balance in acct payable	book Value of the bond
	1/1/2013	$                                                                                -	$                             -	$                          -	$24,237.05	$7,50,000.00	$7,25,762.95
1	06/30/13	$33,750	$             36,288.15	$             2,538.15	$       26,775.20	$7,50,000.00	$ 7,28,301.10
2	12/31/13	$33,750	$             36,415.05	$             2,665.05	$       29,440.25	$7,50,000.00	$ 7,30,966.15
3	06/30/14	$33,750	$             36,548.31	$             2,798.31	$       32,238.56	$7,50,000.00	$ 7,33,764.46
4	12/31/14	$33,750	$             36,688.22	$             2,938.22	$       35,176.78	$7,50,000.00	$ 7,36,702.69
5	06/30/15	$33,750	$             36,835.13	$             3,085.13	$       38,261.92	$7,50,000.00	$ 7,39,787.82
6	12/31/15	$33,750	$             36,989.39	$             3,239.39	$       41,501.31	$7,50,000.00	$ 7,43,027.21
7	06/30/16	$33,750	$             37,151.36	$             3,401.36	$       44,902.67	$7,50,000.00	$ 7,46,428.57
8	12/31/16	$33,750	$             37,321.43	$             3,571.43	$       48,474.10	$7,50,000.00	$ 7,50,000.00
Answer = 4)
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	June , 30	Interest Expenses	$             36,288.15
	2013	To Cash		$          33,750.00
		To Amortization of Discount		$             2,538.15
Answer = 5)
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Dec , 31	Interest Expenses	$             37,321.43
	2016	To Cash		$          33,750.00
		To Amortization of Discount		$             3,571.43
	Dec , 31	Bonds Payable	$          7,50,000.00
	2016	To Cash		$       7,50,000.00