Question

When Patey Pontoons issued 4% bonds on January 1, 2021, with a face amount of $820,000, the market yield for bonds of similar risk and maturity was 5%. The bonds mature December 31, 2024 (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 appropriate factor(s) from the tables provided.) 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, 2021? (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. Req 1 Req 2 Req 3 Req 4 Req 5 and 6 Req 7 Determine the price of the bonds at January 1, 2021. (Round final answers to the nearest whole dollar.) Table values are based on: n = Amount Present Value Cash Flow Interest Principal Price of bonds Req 1 Req2 >

Answer 1

solution 1:

Chart Values are based on:
n= (4 Years*2)	8	Half years
i= (5%/2)	2.50%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.82075	*	$820,000	=	$673,015
Interest (Annuity) [$820,000*4%*6/12]	7.17014	*	$16,400	=	$117,590
Price of Bonds					$790,605

Solution 2:

Patey Pontoons
Journal Entries
Date	Particulars	Debit	Credit
01-Jan-21	Cash A/c Dr	$790,605
	Discount on Bond Payable	$29,395
	To bonds payable		$820,000
	(Being bond issued at Discount)

Solution 3:

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Discount amortization	Unamortized discount	Carrying value
01-Jan-21				$29,395	$790,605
30-Jun-21	$16,400	$19,765	$3,365	$26,030	$793,970
31-Dec-21	$16,400	$19,849	$3,449	$22,580	$797,420
30-Jun-22	$16,400	$19,935	$3,535	$19,045	$800,955
31-Dec-22	$16,400	$20,024	$3,624	$15,421	$804,579
30-Jun-23	$16,400	$20,114	$3,714	$11,706	$808,294
31-Dec-23	$16,400	$20,207	$3,807	$7,899	$812,101
30-Jun-24	$16,400	$20,303	$3,903	$3,997	$816,003
31-Dec-24	$16,400	$20,397	$3,997	$0	$820,000

Solution 4:

Journal Entries
Date	Particulars	Debit	Credit
30-Jun-21	Interest Expense Dr	$19,765
	To Discount on bond payable		$3,365
	To Cash		$16,400
	(To record Interest on June 30, 2021)

Solution 5:

Bonds reported on December 31, 2021 =

797420

Solution 6:

Interest expense to be reported in Income statement =

39614

solution 7:

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-24	Interest Expense Dr	$20,397
	To Discount on bond payable		$3,997
	To Cash		$16,400
31-Dec-24	Bond Payable Dr	$820,000
	To Cash		$820,000