Question

Exercise 14-9 Issuance of bonds; effective interest; amortization schedule; financial statement effects LO14-2) When Patey Pontoons issued 10% bonds on January 1, 2018, with a face amount of $800,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2021 (4 years). Interest is paid semiannually on June 30 and December 31, (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use approprlate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2018 2. Prepare the Journal entry to record their issuance by Patey on January 1, 2018 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, 2018 5. What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2018? 6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2018? (Ignore Income taxes.) 7. Prepare the appropriate journal entries at maturity on December 31, 2021. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3 Req 4 Req 5 and 6 Req 7 What is the amount(s) related to the bonds that Patey will report in its balance sheet at December 31, 2018 and income statement for the year ended December 31, 2018? (Ignore income taxes.) (Round your intermediate calculation to nearest whole dollar.) 5. December 31, 2018 book value s 780,021 S 42,750 6. Interest expense for 2018 Req 4

Answer 1

Reason for wrong answer - $42,750 is the interest expense from Jul to Dec of Year 2018.

Correct Answer - Total expense for 2018 will be Jan to Jun of 2018 ($42,606) + Jul to Dec of 2018 ($$42,750) = $85,356

Detailed calculation: