Question

XEL Corporation is considering to issue a bond. The par value of the bond is 100,000, coupon rate 6%, maturity is 10 years and interest is payable quarterly (four times a year). The market interest rate is 5%. The bond will be issued on Feb 1, 2020. XEL corporation's year end is Jul 31. XEL Corp's issue price of the bond is expected to be choose... The amount of Choose... • will be Choose... Write the journal entries that will be created in 2020 for the issuance of the bond, interest payment and XEL'S year end interest accrual in the space below. B IT: !!! III

Answer 1

Answer

1.50% 1.25% Coupon Rate Market rate Face Value or Maturity Value Market Value Life Premium 6.00% Quarterly 5.00% Quarterly 100,000 107,831 10 Quarterly 7,831 40 Requirement a Computation of Present value of bond to be issued The PV of the Bond=PV of Interests+PV of Bond Maturity Value PV of Interest Interest Payment=Coupon Rate *FV Annuity Factor=(1-(1+r)^-N)/ r=Market Rate N= 1,500 31.32693 PV factor up to 5 decimal places 1.3% 40 The Present Value of Annual Interest payments 46,990 A PV of Bond Maturity Value=Face Value *PV factor for N Face Value or Maturity Value PV factor=1/(1+r)^N 100,000 0.60841 PV factor up to 5 decimal places Present Value of bond face amount 60,841 B 107,831 A+B Issue price of the bond The amount of premlum will be $7,831 Amortization table B Date Interest Payment (Coupon Rate*FV) 1-Feb-20 30-Apr-20 31-Jul-20 31-Oct-20 31-Jan-21 30-Apr-21 с D E Interest Expense (Market rate previous book Amortisation value in E) of Bond Effective Interest Premium [C- Bond Amortized rate method B] cost 107,831 1,348 -152 107,679 1,346 -154 107,525 1,344 -156 107,369 1,342 - 158 107,211 1,333 -167 107,044 6,713 -787 Credit Balance in Bond Premium Account 7,831 7,679 7,525 7,369 7,211 7,044.30 1,500 1,500 1,500 1,500 1,500 7,500 Requirement b Debit Credit Date 1-Feb-20 107,831 General Journal Cash Bond Payable Premlum on Bond Payable 100,000 7,831 30-Apr-20 Interest expense Premium on Bond Payable Cash 1,348 152 1,500 31-Jul-20 Interest expense Premium on Bond Payable Cash 1,346 154 1,500 31-Oct-20 Interest expense 1,344 156 Premium on Bond Payable Cash 1,500 31-Dec-20 Interest expense ($1,342 x 2/3) Premlum on Bond Payable ($158 x 2/3) Cash 895 105 1,000