Question

Can someone please help me with this? I would really really appreciate it

Name CH14 Graded Written Homework PROBLEM 1 On January 1, 2019 the first day of its fiscal year, Monitors Corporation issued $405.000 of nine-year, 6% bonds when the market rate was 5%, with interest payable semiannually, on June 30 and December 31. The company uses the effective interest rate method to amortize bond discounts and premiums. Calculate the proceeds from the sale of the bonds (selling price) and write your answer on the line provided. Use the present value tables provided in class (also posted in our course D2L shell with the CH14 materials) to make the calculation. (Use the numbers exactly as they appear in the table.) Round to the nearest whole dollar when necessary. You must show your work for any credit to be awarded. Prepare all required journal entries for 2019.

Answer 1

Answer is given below

Amortization table is given at bottom to help understand the concept better

2.5% PV is taken for 18th year for principal

for Interest payment PV is taken for total 18 years - 9 year bond X 2 term interest = 18 terms (years)

PV factor 2.5% 0.64117 14.35336 Amount $405,000 $12,150 Principal Interest Selling price Discounted PV $259,674 $174,393 $434,067 I Interest - $405,000*6%/12*6 Premium | $29,067 (Issue price - Face value)

Journal entries for 2019 Bond issue / Credit | Date January 1 2019 Debit $434,067 Account Titles and explanation Cash To Bond payable To Premium payable on bond (Being bonds issued) $405,000 $29,067 Credit First interest payment Date Account Titles and explanation June 30 2019 Interest Expense Premium payable on bond To Cash (Being interest paid on bond) Debit $10,852 $1,298 $12,150 Credit Second interest payment Date Account Titles and explanation December 31, 2019 Interest Expense Premium payable on bond To Cash (Being interest paid on bond) Debit $10,819 $1,331 $12,150 Cash to be paid to bondholders during 2019 June 30 2019 Cash paid for Interest December 31, 2019 Cash paid for Interest Total Cash paid $12,150 $12,150 $24,300 Interest expense to be recognized for 2019 June 30 2019 Interest expense December 31, 2019 Interest expense Total Cash paid $10,852 $10,819 $21,671 Monitors Corporation is borrowing this money at 6% rate of interest Since market rate of interest is 5% and higher interest rate is paid the bonds are issued at premium Interest expense over the period of the bonds (As per amortization table) Total Interest Premium on bonds issue Net Interest expense $218,700 ($12,150*18) $29,067 $189,633 Adjusting entry with respect to bonds is required when bonds are redeemed or converted to common shares

Amortization Table Interest Premium Expense Amortization at 2.5% Cash Interest Date Premium Balance January 1 2019 June 30 2019 December 2019 June 30 2020 December 2020 June 30 2021 December 2021 June 30 2022 December 2022 June 30 2023 December 2023 June 30 2024 December 2024 June 30 2025 December 2025 June 30 2026 December 2026 June 30 2027 December 2027 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $12,150 $218,700 $10,852 $10,819 $10,786 $10,752 $10,717 $10,681 $10,644 $10,607 $10,568 $10,529 $10,488 $10,446 $10,404 $10,360 $10,316 $10,270 $10,223 $10,174 $189,635 $1,298 $1,331 $1,364 $1,398 $1,433 $1,469 $1,506 $1,543 $1,582 $1,621 $1,662 $1,704 $1,746 $1,790 $1,834 $1,880 $1,927 $1,976 $29,065 $29,067 $27,769 $26,438 $25,074 $23,676 $22,243 $20,774 $19,268 $17,725 $16,143 $14,522 $12,860 $11,156 $9,410 $7,620 $5,786 $3,905 $1,978 $0 Bond Carrying Amount $434,067 $432,769 $431,438 $430,074 $428,676 $427,243 $425,774 $424,268 $422,725 $421,143 $419,522 $417,860 $416,156 $414,410 $412,620 $410,786 $408,905 $406,978 $405,003 |