Question

On July 2, 2018, Astrotech Inc. purchased $440,000 of Sain Corp. 4 % bonds at a price to yield a market interest rate of 5 %. The bonds pay interest semi- annually on July 1 and January 1, and mature on July 1, 2028. Astrotech plans to hold this investment until it matures. At December 31, 2018, which is the year end for both companies, the bonds were trading at 94 (this means 94 % of maturity value). Part 1 Calculate the present value (issue price) of the bonds on July 2, 2018. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places, e.s. 5,250.) Present Value of the Bonds $ eTovthook ond Medis Part 2 For Astrotech, the investor, record. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.s. 5,250. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) 1. the purchase of the bonds on July 2, 2018 the accrual of interest on December 31, 2018, 2 3. the receipt of interest on January 1, 2019, and 4 the receipt of interest on July 1, 2019 Credit Debit Account Titles and Explanation Date 2018 July 2 Dec. 31 2019 Jan. 1 3. the receipt of interest on January 1, 2019, and 4. the receipt of interest on July 1, 2019. Date Account Titles and Explanation Debit Credit 2018 July 2 Dec. 31 2019 Jan. 1 July 1 Part 3 For Sain, the investee (issuer), record. (Credit account titles are automatically indented when the amount is entered. Do not indent manually Round answers to 0 decimal places, es. 5,250. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) 1 the Issue of the bonds on July 2, 2018 2 the accrual of interest on December 31, 2018 3. the payment of interest on January 1, 2019, and 4 the payment of interest on July 1,2019 Credit Debit Account Titles and Explanation Date 2018 July 2 Dec. 31 Date Account Titles and Explanation Debit Credit 2018 July 2 Dec. 31 2019 Jan. 1 July 1

Answer 1

D A E F Part 1 1 2 Calculation of Total Present Value of Bonds 3 Present Value Present Value Particulars Amount ($) (S) 4 Factor 5 Interest Component 137185 8800 15.58916 6 Maturity Amount 440000 0.61027 268519 Total Present Value of Bonds 405704 7 8 Therefore, Total Present Value of bonds is $405704 9 10 11 Calculations are being shown as below: 12 Calculation of Total Present Value of Bonds Present Value Present Value Amount ($) Particulars ($) 13 Factor 14 Interest Component440000*4%*1/2=-PV(2.5%,20,1,,0) 1/(1.025^20) C14*D14 15 Maturity Amount 440000 -C15*D15 16 Total Present Value of Bonds SUM(E14:E15) 17 LLI tLn

Part 2: Journal Entries Accounts Title and Explanation Debit ($) Credit ($) Date 02-Jul-18 Investment in Bonds 440000 Bank 440000 (To record the purchase of bonds) 31-Dec-18 Accrued Interest 8800 Interest Income 8800 (To record the accrued interest) 01-Jan-19 Bank 8800 Accrued Interest 8800 (To record received accrued interest) 01-Jul-19 Bank 8800 Interest Income 8800 (To record interest income) Part 3:

Journal Entries Debit ($) Credit (S) Accounts Title and Explanation Date 02-Jul-18 Bank 440000 Bonds Payable 440000 (To record the issue of bonds) 31-Dec-18 Interest Expense 8800 Interest Payable 8800 (To record the interest payable) 01-Jan-19 Interest Payable 8800 Bank 8800 (To record paid interest) 01-Jul-19 Interest Expense 8800 Bank 8800 (To record paid interest)