Question

National Orthopedics Co. issued 9% bonds, dated January 1 with a face amount of $500,000 on January 1 2021. The bonds mature on December 31, 2024 (4 years). For bonds of similar risk and maturity the market yield was 10% Interest is paid semiannually on June 30 and December 31 (EVO 51 PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of $11 (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 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: Amount Present Value Cash Flow Interest Principal Price of bonds Requked to Required 2 >

Answer 1

Answer to Requirement 1:

Face Value of Bonds = $500,000

Annual Coupon Rate = 9.00%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $500,000
Semiannual Coupon = $22,500

Time to Maturity = 4 years
Semiannual Period = 8

Annual Market Yield = 10.00%
Semiannual Market Yield = 5.00%

Table values are based on: n = Cash Flow Interest Principal Price of bonds $ $ 5.00% Amount Present Value 22,500 $ 145,422 500,000 $ 338,420 $ 483,842

Present Value of Interest = $22,500 * PVA of $1 (5.00%, 8)
Present Value of Interest = $22,500 * 6.46321
Present Value of Interest = $145,422

Present Value of Principal = $500,000 * PV of $1 (5.00%, 8)
Present Value of Principal = $500,000 * 0.67684
Present Value of Principal = $338,420

Answer to Requirement 2:

Credit Date General Journal Jan. 01, 2021 Cash Discount on Bonds Payable Cash Debit 483,842 16,158 $ 500,000

Answer to Requirement 3:

Semiannual Bond Interest Discount Interest Period Cash Interest Carrying Value Expense Amortization End 01/01/2021 $ 483,842 06/30/2021 $ 22,500 $ 24,192 $ 1,692 $ 485,534 12/31/2021 $ 22,500 $ 24,277 $ 1,777 $ 487,311 06/30/2022 $ 22,500 $ 24,366 $ 1,866 $ 489,177 12/31/2022 $ 22,500 $ 24,459 $ 1,959$ 491,136 06/30/2023 $ 22,500 $ 24,557 $ 2,057 $ 493,193 12/31/2023 $ 22,500 $ 24,660 $ 2,160 $ 495,353 06/30/2024 $ 22,500 $ 24,768 $ 2,268 $ 497,621 12/31/2024 $ 22,500 $ 24,879 $ 2,379 $ 500,000 Total $ 180,000 $ 196,158 $ 16,158

Answer to Requirement 4:

Credit Debit 24,192 Date General Journal June 30, 2021 Interest Expense Discount on Bonds Payable Cash 1,692 22,500 S

Answer to Requirement 5:

Credit Date General Journal Dec. 31, 2024 Bonds Payable Cash Debit 500,000 $ $ 500,000