Question

On January 1, 2021, Bradley Recreational Products issued $120,000, 9%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $116,122 to yield an annual return of 10%. (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. Prepare an amortization schedule that determines interest at the effective interest rate.
2. Prepare an amortization schedule by the straight-line method.
3. Prepare the journal entries to record interest expense on June 30, 2023, by each of the two approaches.
5. Assuming the market rate is still 10%, what price would a second investor pay the first investor on June 30, 2023, for $12,000 of the bonds?

Answer 1

Answer Page No 0 Given that Issue of bonds = $120.000 Bond issue - Interest vrabe = 9% Bond annual vrabe of one twin = 10 % Bond issue - term Cycans) - 4 Bonds issued at $116,122 O Amoubization schedule Cash interest - Issue of bonds x 92 = 120.000 X 4150% = $5400 Ettakive interest - Revious ou sfonding balance X 1024 Effective interest - Previous out afanding balance 5% Incor case in balance concash interest + effective interest Outstanding balance = Previous outirfanding balance + In crease in balance:

Page No @ Cast Prnterest effective interest @54 Increase in balance outstanding balance 406 5806 5826 $116,122 $116,528 $116,954 $ 11402 5400 5400 5400 5400 426 5848 5870 470 $117872 118366 5400 5894 494 5400 518 5918 1944 5400 544 $ 118884 $119408 $120,000 5400 5972 572 43,200 $44078 $ 3878 @ Amortizations askedule by the straight-live method Cash payment = Issue of bondo x 94/2 = 120,000 X 415% = $ 5400 Recoorded interest = Total effective interest : total payments - 44048 $5884:75

Increase in balance e piecorded interest – cach pagesent Pageanle ☺ outstanding balance = Previous outstanding balance f increase in balance be ment Cash payment / Recorded interest - 5400 5400 5400 5884.95 5884 TS 5884.75 Increase balance 484.75 484.75 484.75 484.75 484.95 484.95 outstanding balance 116.122 $116606.75 $1170915 $ 117546.25 $ 118061 $ 118545.75 $119030.5 $ 119515.25 $ 120,000 6400 5884.95 5400 on the ot to 6400 5884.75 5884-75 588475 5884.75 5400 5400 484.75 484.75 43200 44048 $3878 Journal en cord interest expense on one 30, 2023. iu u AM ) LAA by cach of two approaches! Effective interest method cat payment is) Acount title Debit Interest expense Discount on bonds payable cash Gedit $ 5894 $ 494 $ 5400 !

Stenraight line moetked (at payments) Account title Interest expense Discount on bonds payable . Cash Page No ③ Debit | Gedit $ 5884.751 $ 48475 $5400 © Porice of the bones On June 30, 2023 8. c., payment 5 In effective interest method, at payment 5 outstanding balance = $118,366 Price of the bonds = x 12000 118366 120,000 11836.6 no 11837 . Price of the bonito = $11837