Question

1. The Alfa company issued bonds with par value of $ 50 million and a nominal interest rate of 6.50%. The bonds pay interest every six months on January 1 and July 1. They were issued on July 1, 2019 and on that date had a duration of 20 years. On the issuance date, the market interest rate (yield) was 5.25%.
A. Prepare the journal entry to record the issuance of the bonds on July 1, 2019.
b. Prepare the wage entry for July 1, 2020.
c. If, with eight years (16 semesters) remaining for the bonds to mature, the company withdraws them in the amount of $ 56 million, prepare the wage entry to record the transaction.

2. Assume the same data as in Exercise 1, except that the bonds do NOT pay periodic interest.
to. 
A. Prepare the journal entry to record the issuance of the bonds on July 1, 2019.
b. Prepare the wage entry for July 1, 2021.
c. If, with eight years until the bonds mature, the company withdraws them in the amount of $ 35 million, calculate the gain or loss on the withdrawal of the bonds.

answer the letters in each number please

Answer 1

	Basic Information:-
	Bond issue		$ 50 million		Duration		20 years
	Interest rate		6.50%		Date of issue	01-07-2019
	Interest Payment		6 months		Market rate of int.		5.25%
Note:-	( Since question doesnot mention use of time factor, therefore no effect of time factor is taken)
Solution no. 1
	Date		Particular	Amt (Dr.)	Amt (Cr.)
A)	01-07-2019		Bank A/c	dr.		$ 50,000,000
			to bonds A/c			$ 50,000,000
	( Being Bonds issued)
B)	01-07-2020		Interest A/c dr.	$ 16,25,000
			to Bank A/c				$      16,25,000
	(Being 6 months interest paid)
	01-07-2020		Profit & loss A/c dr.		$ 6,000,000
			to Interest A/c dr.		$      16,25,000
	(Interest expense charged in P&L)

C)	01-07-2031		Bonds A/c   dr.		$ 50,000,000
			premium on early redemption of bond A/c dr	$ 6,000,000
			to Bank A/c				$ 56,000,000
	(Being early redemption of bonds)
	01-07-2031		Profit & loss A/c dr.		$ 7,625,000
			to premium on early redemption of bond A/c dr		$ 6,000,000
			to Interest A/c dr.		$      16,25,000
	(premium amount & Interest amount charged in P& l)
	01-07-2031		Interest A/c dr.	16,25,000
			to Bank A/c				16,25,000
	(Being 6 months interest paid)