Question

Company XYZ issued bonds with a par value of $ 60 million and a nominal interest rate of 7%. 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 15 years. On the issue date, the market interest rate (yield) was 8.5%. Assume the presented data, except that the bonds do NOT pay periodic interest to answer the following questions:

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 the company withdraws them in the amount of $ 43 million after five years until the bonds mature, calculate the gain or loss on the withdrawal of the bonds.

Answer 1

Part A

Date	Particulars	Amount
July 1 2019	Cash A/C Dr	60 million
	To Bonds Payable	60 million
	(Issuance of bonds of 60 million at par )

Part B

Date	Particulars	Amount
July 1 2021	Interest Payable A/C DR	2.1 Million
	TO cash	2.1 million
	(Interest payable of 60 million at 7% for 6 mnths )

Part C

If company withdraws them 43 Million then gain of 60-43 = 17million