Question

On January 1, 2021, Instaform, Inc., issued 10% bonds with a face amount of $52 million, dated January 1. The bonds mature in 2040 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually. (EV 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.) Required: 1-a. Determine the price of the bonds at January 1, 2021. 1-b. Prepare the journal entry to record their issuance by Instaform. 2-a. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2021. 2-b. Assume the market rate was 9%. Prepare the journal entry to record their issuance by Instaform. 3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1A Req 18 Req 2A Reg 28 Reg 3 Determine the price of the bonds at January 1, 2021. (Enter your answer in whole dollars.) Price of the bonds $ 56,782,960 Reg18 > 1 of 4 SH Next >

Answer 1

Bond price =	PV of Interest payments	+ PV of Face Value
Computation of PV of Interest payments
Total Interest payment per annum
(10% of 52 million)	5200000
PV rate	12%
No. of payments	40
(as it is semi annually 20*2)
PV Annuity factor 12%, 40 periods	8.244
Therefore, PV of Interest payments	42868800	(i)
Computation of PV of Face Value
Face value of bond	52000000
PV factor 12%, 20 periods	0.1037
Therefore, PV of Face Value	5390672	(ii)
Therefore Bond Price [(i) + (ii)]	48259472