Homework Answers
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As per the HOMEWORKLIB POLICY, only the first question should be answered. Kindly take note of it. Every new question should be posted separately.
Part A
The bonds were issued at a premium because the coupon rate is greater than market interest rate.
Part B
Bond price = present value of principle + present value of interest payment
= (10000000*PV3%,10)+(10000000*8%/2*PVFA3%,10)
=(10000000*0.74409) +(400000*8.53020)
= 7440900+3412080
= $10852980
|
Date |
Account titles and explanation |
Debit |
Credit |
|
January 1, 2018 |
Cash |
10852980 |
|
|
Bonds payable |
10000000 |
||
|
Premium on bonds payable |
852980 |
||
|
(to record issuance of bonds) |
|||
|
June 30, 2018 |
Interest expense (10852980*6%/2) |
325589 |
|
|
Premium on bonds payable |
74411 |
||
|
Cash (10000000*8%/2) |
400000 |
||
|
(to record first interest payment) |
|||
|
December 31, 2018 |
Interest expense ((10852980-74411)*6%/2) |
323357 |
|
|
Premium on bonds payable |
76643 |
||
|
Cash (10000000*8%/2) |
400000 |
||
|
(to record second interest payment) |
Bond value on January 1, 2019 = 10852980-74411-76643 = 10701926
Part C
|
Date |
Account titles and explanation |
Debit |
Credit |
|
January 1, 2019 |
Bonds payable (10000000/2) |
5000000 |
|
|
Premium on bonds payable (701926/2) |
350963 |
||
|
Cash |
5200000 |
||
|
Gain on retirement of bonds |
150963 |
||
|
(to record 50% retirement of bonds) |
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