Question

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Check my won On January 1, 2021, Bradley Recreational Products issued $150,000, 9%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $145,153 to yield an annual return of 10%, (FY of $1. PV of S. EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare an amortization schedule that determines interest at the effective interest rate. 2. Prepare an amortization schedule by the straight-line method. 3. Prepare the journal entries to record interest expense on June 30, 2023, by each of the two approaches. 5. Assuming the market rate is still 10%, what price would a second investor pay the first investor on June 30, 2023, for $15,000 of the bonds? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 5 Prepare an amortization schedule that determines interest at the effective interest rate. (Enter your answers in whole dollars.) Payment Number Cash Payment Effective Interest Increase in Balance Carrying Value 1 2 3 5 6 7 8 Totals Required 2 > < Prey 2 of 4 Next >

Answer 1

Requirement 1: Effective interest method: Payment Cash Effective Increase in Number Payment Interest Balance Carrying Value А B =D*5% C=B-A DED-C $ 145,153 1 $ 6,750 $ 7,258$ 508 $ 145,661 2 $ 6,750 $ 7,283 $ 533$ 146,194 3 $ 6,750 $ 7,310$ 560$ 146,753 $ 6,750 $ 7,338$ 588 $ 147,341 5 $ 6,750 $ 7,367 $ 617 $ 147,958 6 6,750 $ 7,398 $ 648 $ 148,606 7 $ 6,750 $ 7,430 $ 680$ 149,286 8 6,750 $ 7,464 $ 713 $ 150,000 Totals $ 54,000 $ 58,848 $ 4,847 Cash payment = $150,000 x 4.5% = 6750 Effective interest - Preceding carrying value x 5% Increase in balance = Effective interest - Cash payment Carrying value = Preceding carrying value + Increase in balance $ $ $ $ $ $

Requirement 2: Straight-line method: Payment Number Cash Payment A 1 $ 2 $ 3 3 $ $ Recorded Increase in Interest Balance Carrying Value B =A+C C=(note) D =D +C $ 145,153 6,750 $ 7,356 $ 606 $ 145,759 6,750 $ 7,356 $ 606 $ 146,365 6,750 $ 7,356 $ 606 $ 146,971 6,750 $ 7,356 $ 606 $ 147,577 6,750 $ 7,356 $ 606 $ 148,182 6,750 $ 7,356 $ 606 $ 148,788 6,750 $ 7,356 $ 606 $ 149,394 6,750 $ 7,356 $ 606 $ 150,000 54,000 $ 58,848 $ 4,848 4 5 $ 6 6 7 $ 8 8 $ Totals $ Note 6750 $ 606 Cash payment = $150,000 x 4.5% = Increase in balance = [150,000-145153] = 8 PAYMENTS = Effective interest = Cash payment + Increase in balance Carrying value = Preceding carrying value + Increase in balance

Credit Requirement 3 Under effective interest, Date Account title and Explanation Debit June 30,2023 Interest expense $ 7,367 Discount on bonds payable Cash [To record payment of interest] $ 617 $ 6,750 Credit $ Under Straight-line: Date Account title and Explanation Debit June 30,2023 Interest expense $ 7,356 Discount on bonds payable Cash [To record payment of interest] $ 606 6,750 $ Requirement 4 For $150,000, carrying value is $147,958 For $15,000, Carrying value is $14,796 Hence, The price of the bond of $15,000 for second investor on June 30,2023 is $14796