Question

On February 1, 2021, Cromley Motor Products issued 10% bonds, dated February 1, with a face amount of $60 million. The bonds mature on January 31, 2025 (4 years). The market yield for bonds of similar risk and maturity was 12%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $60,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (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. Determine the price of the bonds issued on February 1, 2021.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2021.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2023.

1. Price of the bonds: $56,273,970

Req 1 Req 2A Req 2B Req3 Req 4 Cromley Req 4 Barnwell Prepare amortization schedules that indicate Cromley's effective interest expense for ea maturity. (Do not round intermediate calculations. Enter your answers in whole dollars.) Payment Number Cash Payment Effective Interest Increase in Balance 1 $ $ $ 2 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 24,000,000 3,376,438 3,399,024 3,422,966 3,448,344 3,475,245 3,503,759 3,533,985 3,566,024 27,725,785 376,438 399,024 422,966 448,344 475,245 503,759 533,985 566,024 3.725,785 Outstanding Balance $ 56,273,970 56,650,408 57,049,432 57,472,398 57,920,742 58,395,987 58,899,746 59,433,731 59,999,755 Totals $ $ $

I'm stuck in number 4 recording journal entries. Numbers are not matched please help.

Answer 1

1.The price of the bond on Feb 1 2021--

Using the formula Price=PV of future coupons+PV of face value at maturity

PV=(3000000*6.20979)+(60000000*0.62741)

56273970

(P/A,i=6%,n=8=6.20979) & P/F,i=6%,n=8 =0.62741)

So, the price of the bond= $ 56273970

& it is a discount bond,

YTM > Coupon rate, so, Price < par

the discount on issue being,

60000000-56273970

3726030

3…
Date	Cromley's books	Debit	Credit
2021	To Record Bond Issuance
1-Feb	Cash	56273970
	Discount on bonds payable	3726030
	Bonds payable		60000000
Date	Barnwell's Books	Debit	Credit
2021	Bond Investment
1-Feb	Investment in Bonds	60000
	Discount on bond Investment		3726
	Cash		56274

4.Pmt.No.	Date	Cromley's books	Debit	Credit
	2021	Bond Issuance
	1-Feb	Cash	56273970
		Discount on bonds payable	3726030
		Bonds payable		60000000
1	31-Jul	Interest expense	3376438
		Discount on bonds payable		376438
		Cash		3000000
2	31-Dec	Interest expense(3399024/6*5)	2832520
		Discount on bonds payable(399024/6*5)		332520
		Interest payable(3000000/6*5)		2500000
	2022
2	31-Jan	Interest expense(3399024/6*1)	566504
		Interest payable(above)	2500000
		Discount on bonds payable(399024/6*1)		66504
		Cash		3000000
3	31-Jul	Interest expense	3422966
		Discount on bonds payable		422966
		Cash		3000000
4	31-Dec	Interest expense(3448344/6*5)	2873620
		Discount on bonds payable(448344/6*5)		373620
		Interest payable(3000000/6*5)		2500000
	2023
4	31-Jan	Interest expense(3448344/6*1)	574724
		Interest payable(above)	2500000
		Discount on bonds payable(448344/6*1)		74724
		Cash		3000000

Pmt.No.	Date	Barnwell's Books	Debit	Credit
	2021	To record Bond Investment
	1-Feb	Investment in Bonds	60000
		Discount on bond Investment		3726
		Cash		56274
1	31-Jul	Cash	3000
		Discount on bond Investment	376
		Interest revenue		3376
2	31-Dec	Interest receivable(3000/6*5)	2500
		Discount on bond Investment(399/6*5)	333
		Interest revenue(3399/6*5)		2833
	2022
2	31-Jan	Cash	3000
		Discount on bond Investment(399/6*1)	67
		Interest Receivable(above)		2500
		Interest revenue(3399/6*1)		567
3	31-Jul	Cash	3000
		Discount on bond Investment	423
		Interest revenue		3423
4	31-Dec	Interest receivable(3000/6*5)	2500
		Discount on bond Investment(448/6*5)	373
		Interest revenue(3448/6*5)		2873
4	2023
	31-Jan	Cash	3000
		Discount on bond Investment(448/6*1)	75
		Interest Receivable(above)		2500
		Interest revenue(3448/6*1)		575