Question

E10-7 Preparing Journal Entries to Record Issuance of Bonds and Payment of Interest [LO 10-3] On January 1, Applied Technologies Corporation (ATC) Issued $540,000 in bonds that mature in 10 years. The bonds have a stated Interest rate of 11 percent. When the bonds were issued, the market Interest rate was 11 percent. The bonds pay interest once per year on December 31 Book Required: 1. Determine the price at which the bonds were issued and the amount that ATC received at issuance 2. & 3. Prepare the required journal entries to record the bond Issuance and the first interest payment on December 31 assuming no Interest has been accrued earlier in the year Complete this question by entering your answers in the tabs below. Reg 2 and 3 Determine the price at which the bonds were issued and the amount that ATC received at issuance Amount Received at issuance Req 2 and 3 >

Answer 1

2 Tables Values are Based on: n = 10 11% 5 Cash Flow Table Value Amount Present Value 6 Future (marturity) value 0.3522 $540,000 $190,180 7 Interest (annuity) 5.8892 $59.400 $349,820 8 Issue price of bonds $540,000 Since the stated interest rate is equal to market interest rate i.e. 11%, the issue price will be equal to 9 maturity value. Issue price ofbonds 10 11 2. and 3. Date January. 1 Credit Debit $540,000 General Journal Cash Bonds payable (To record issuance of bonds) $540,000 December. 31 $59,400 Interest expense Cash (To record interest payment) $59,400 Calculations are shown below: C D 2 Tables Values are Based on: n = 10 i = 0.11 Cash Flow Table Value Amount Present Value 6 Future (marturity) value =PV(B4,B3,0,-1,0) 540000 =B6*C6 7 Interest (annuity) =PV(B4,B3,-1,0,0) =C6*11% =B7*C7 8 Issue price of bonds =D6+D7 Since the stated interest rate is equal to market interest rate i.e. 11%, the issue price will be equal to 9 maturity value. 11 2 and 3. Date January. 1 Debit Credit =D8 General Journal Cash Bonds payable (To record issuance of bonds) =C6 December 31 =C13*11% Interest expense Cash (To record interest payment)