Question

On January 1, 2021, Instaform, Inc., issued 10% bonds with a face amount of $48 million, dated January 1. The bonds mature inTABLE 1 Future Value of $1 FV = $1(1+i) 20.0% 1.20000 1.44000 ndi 1.0% 1 1.01000 2 1.02010 3 1.03030 4 1.04060 5 1.05101 1.5TABLE 2 Present Value of $1 $1 PV (1+1) wi 1.0% 1 0.99010 2 0.98030 3 0.97059 4 0.96098 5 0.95147 1.5% 0.98522 0.97066 0.956TABLE 3 Future Value of an Ordinary Annuity of $1 EVA_ (1 + i) - 1 ni 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%TABLE 4 Present Value of an ordinary Annuity of $1 1- (+1) PVA== ni 1 2 3 4 5 1.0% 1.5% 0.99010 0.98522 1.97040 1.95588 2.940TABLE 5 Future Value of an Annuity Due of $1 (1+i) -11 FVAD - = *(1+i) wi 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5,5%TABLE 6 Present Value of an Annuity Due of $1 PVAD= |x (1+i) ni 1 2 3 4 5 1.0% 1.00000 1.99010 2.97040 3.94099 4.90197 1.5% 1

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Answer #1

Answer 1.

Face Value of Bonds = $48,000,000

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $48,000,000
Semiannual Coupon = $2,400,000

Time to Maturity = 20 years
Semiannual Period = 40

Annual Interest Rate = 12.00%
Semiannual Interest Rate = 6.00%

Issue Price of Bonds = $2,400,000 * PVA of $1 (6.00%, 40) + $48,000,000 * PV of $1 (6.00%, 40)
Issue Price of Bonds = $2,400,000 * 15.04630 + $48,000,000 * 0.09722
Issue Price of Bonds = $40,777,680

Credit Date General Journal Jan. 01, 2021 Cash Discount on Bonds Payable Bonds Payable Debit $ 40,777,680 $ 7,222,320 $ 48,00

Answer 2.

Face Value of Bonds = $48,000,000
Semiannual Coupon = $2,400,000
Semiannual Period = 40

Annual Interest Rate = 9.00%
Semiannual Interest Rate = 4.50%

Issue Price of Bonds = $2,400,000 * PVA of $1 (4.50%, 40) + $48,000,000 * PV of $1 (4.50%, 40)
Issue Price of Bonds = $2,400,000 * 18.40158 + $48,000,000 * 0.17193
Issue Price of Bonds = $52,416,432

Credit Debit $ 52,416,432 Date General Journal Jan. 01, 2021 Cash Bonds Payable Premium on Bonds Payable $ 48,000,000 $ 4,416

Answer 3.

Credit Date General Journal Jan. 01, 2021 Investment in Bonds Premium on Bonds Investment Cash Debit $ 48,000,000 $ 4,416,432

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