Question

When Patey Pontoons issued 8% bonds on January 1, 2021, with a face amount of $780,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2024 (4 years). Interest is paid semiannually on June 30 and December 31. FV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 5.88 Dots Required: 1. Determine the price of the bonds at January 1, 2021 2. Prepare the journal entry to record their issuance by Patey 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. What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2021? 6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 20217 ignore income taxes.) 7. Prepare the appropriate journal entries at maturity on December 31, 2024 Complete this question by entering your answers in the tabs below. Reg1 Reg 2 Reg 3 Re 4 Reqs and 6 Reg 7 Determine the price of the bonds at January 1, 2021. Roundnalanswers to the nearest whole dollar.) Table values are based on Amount Present Valle

Answer 1

Solution 1:

Chart Values are based on:
n= (4 Years*2)	8	Half years
i= (11%/2)	5.50%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.65160	*	$780,000	=	$508,248
Interest (Annuity) [$780,000*8%*6/12]	6.33457	*	$31,200	=	$197,639
Price of Bonds					$705,887

Solution 2:

Patey Pontoons
Journal Entries
Date	Particulars	Debit	Credit
01-Jan-21	Cash A/c Dr	$705,887
	Discount on Bond Payable	$74,113
	To bonds payable		$780,000
	(Being bond issued at Discount)

Solution 3:

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Discount amortization	Unamortized discount	Carrying value
01-Jan-21				$74,113	$705,887
30-Jun-21	$31,200	$38,824	$7,624	$66,490	$713,510
31-Dec-21	$31,200	$39,243	$8,043	$58,447	$721,553
30-Jun-22	$31,200	$39,685	$8,485	$49,961	$730,039
31-Dec-22	$31,200	$40,152	$8,952	$41,009	$738,991
30-Jun-23	$31,200	$40,645	$9,445	$31,565	$748,435
31-Dec-23	$31,200	$41,164	$9,964	$21,601	$758,399
30-Jun-24	$31,200	$41,712	$10,512	$11,089	$768,911
31-Dec-24	$31,200	$42,289	$11,089	$0	$780,000

Solution 4:

Journal Entries
Date	Particulars	Debit	Credit
30-Jun-21	Interest Expense Dr	$38,824
	To Discount on bond payable		$7,624
	To Cash		$31,200
	(To record Interest on June 30, 2021)

Solution 5:

Bonds reported on December 31, 2021 =

721553

Solution 6:

Interest expense to be reported in Income statement =

78067

Solution 7:

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-24	Interest Expense Dr	$42,289
	To Discount on bond payable		$11,089
	To Cash		$31,200
31-Dec-24	Bond Payable Dr	$780,000
	To Cash		$780,000