Question

Saved Help Save & E 14 Homework Chec McWherter Instruments sold $500 million of 8% bonds, dated January 1, on January 1, 2021. The bonds mature on December 31, 2040 (20 years). For bonds of similar risk and maturity, the market yield was 10%. Interest is paid semiannually on June 30 and December 31 Blanton Technologies, Inc., purchased $500,000 of the bonds as a long-term investment. (FV of $1. PV of $1. EVA 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 issued on January 1, 2021 2. Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2021. 3. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2021 (at the effective rate). 4. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2021 (at the effective rate). 1 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Determine the price of the bonds issued on January 1, 2021. (Enter your answer in whole dollars.) Bond price

Please help ans all requirements

Answer 1

Solution:

Requirement 1.

Price of the bond issued on january 1, 2021 is

Bond face value = $500 million

Market Interest rate = 10%

Maturity date = 20 years

Interest of the bond = 500 *10% = $50 million

Price of the bond = 498 million.

price = 50/(1.10) +50/ (1.10*1.10)+........................+550/6.72