Question

Alfa issued bonds with an even value of $60 million and a nominal interest rate of 7%. Bonuses pay interest every six months on January 1 and July 1. They aired on July 1, 2019 and lasted for 15 years on that date. At the date of issue the market interest rate (yield) was 8.5%.

A.Prepare the jornal entry to record the issuance of the bonds on July 1, 2019.

B. Prepare the jornal entrance for July 1, 2020.

C. If five years (10 semesters) are missing for the bonds to expire, the company withdraws them in the amount of $62 million, calculate the profit or loss in the withdrawal of the bonds.

Answer 1

Coupon rate per period (7%/2)	3.50%
Face value of bond	$ 60,000,000
Market rate per period (8.50%/2)	4.25%
Interest paid (60000000*3.5%)	$    2,100,000
Interest paid on	Semi annually
Number of period (15*2)	30

	Amount	Multiply: PV factor	Present value
Face value	$ 60,000,000	0.28689	$ 17,213,400
Interest paid	$    2,100,000	16.77902	$ 35,235,942
Issue price of bonds (Total of above)			$ 52,449,342
Less: face value of Bond			$ 60,000,000
Discount on Bond payable			$    7,550,658

Market rate per period used for PV factor.
Market rate per period		4.25%
Period	PV factor	PVA factor
1	0.95923	0.95923
2	0.92013	1.87936
3	0.88262	2.76198
4	0.84663	3.60861
5	0.81212	4.42073
6	0.77901	5.19974
7	0.74725	5.94699
8	0.71679	6.66378
9	0.68757	7.35135
10	0.65954	8.01089
11	0.63265	8.64354
12	0.60686	9.25039
13	0.58212	9.83251
14	0.55839	10.39090
15	0.53562	10.92652
16	0.51379	11.44031
17	0.49284	11.93315
18	0.47275	12.40590
19	0.45348	12.85938
20	0.43499	13.29437
21	0.41726	13.71162
22	0.40025	14.11187
23	0.38393	14.49580
24	0.36828	14.86407
25	0.35326	15.21734
26	0.33886	15.55620
27	0.32505	15.88124
28	0.31180	16.19304
29	0.29908	16.49213
30	0.28689	16.77902

ANswer is calculated using effectivce interest method

Face value of bond	60,000,000
Less: Unamortized bond discount	3,605,130
Carrying value of bond	56,394,870
Less: Redemption value of bond	62,000,000
Gain (Loss) on retirement of bond	(5,605,130)

Journal entries
Date	Account title	Debit	Credit
July 1, 2019	Cash	52,449,342
	Discount on Bond payable	7,550,658
	Bond payable		60,000,000
	(To record issued of bond payable at Discount.)
Jan 1, 2019	Interest expense	2,229,097
	Discount on Bond payable		129,097
	Cash		2,100,000
	(To record interest expense and amortization of bond discount.)
July 1, 2020	Interest expense	2,234,584
	Discount on Bond payable		134,584
	Cash		2,100,000
	(To record interest expense and amortization of bond discount.)
Jun 30, 2029	Bond payable	60,000,000
	Loss on retirement of bond payable	5,605,130
	Discount on Bond payable		3,605,130
	Cash		62,000,000
	(To record early retirement of bond payable.)

XI 5 2020-09(2) SEP.xlsx - Microsoft Excel ? X FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW DEVELOPER Sign in AD1 f Q S T U AB AC AD AE AF 1 2 3 revious 4 ht - Inter 5 revious w X Y Z AA Fair value Interest payment (Credit Cash) = Face value of bond * Coupon rate Interest Expense (Debit Interest Expense) = Carrying value of bond for previous period * Market or Discounting rate Amortization of bond Discount (Credit Bond Discount) = Interest Expense - Interest payment Debit Balance in Bond Discount = Debit Balance in Bond Discount for previous period - Amortization of bond Discount Credit Balance in Bond Payable = Face value of bond Carrying value of bond = Credit Balance in Bond Payable - Debit Balance in Bond Discount 4.25% Bond Discount Amortization Table Debit Balance in Bond Discount at end of retirement of bond payable must be Zero. 6 7 ce in Bon 8 9 10 it be Zer Credit Balance in Bond Payabl e Interest Expense 11 12 ##### 13 14 ##### 15 ##### 16 Interest Period Date payment 0 July 1, 2019 1 Jan 1, 2019 2,100,000 2 July 1, 2020 2,100,000 3 Jan 1, 2020 2,100,000 4 Jun 30, 2021 2,100,000 5 Jan 1, 2021 2,100,000 6 Jun 30, 2022 2,100,000 7 Jan 1, 2022 , 2,100,000 8 Jun 30, 2023 2,100,000 9 Jan 1, 2023 2,100,000 10 Jun 30, 2024 2,100,000 11 Jan 1. 2024 2.100.000 Sheet91 Sheet92 Sheet93 Sheet94 17 Amortization of Debit Balance in Credit Balance in Bond bond Discount Bond Discount Payable 7,550,658 60,000,000 129,097 7,421,561 60,000,000 134,584 7,286,977 60,000,000 140,303 7,146,674 60,000,000 146,266 7,000,407 60,000,000 152,483 6,847,925 60,000,000 158,963 6,688,962 60,000,000 165,719 6,523,242 60,000,000 172,762 6,350,480 60,000,000 180,105 6,170,376 60,000,000 187,759 5,982,617 60,000,000 195.739 5.786.878 60.000.000 Sheet96 + Carrying value of bond 52,449,342 Jan 1 2017 52,578,439 Jun 30 2017 52,713,023 Dec 31 2017 52,853,326 Jun 30 2018 52,999,593 Dec 31 2018 53,152,075 Jun 30 2019 53,311,038 Dec 31 2019 53,476,758 Jun 30 2020 53,649,520 Dec 31 2020 53,829,624 Jun 30 2021 54,017,383 Dec 31 2021 Window 54.213.122 Gete settings to activate Windows 2,229,097 2,234,584 2,240,303 2,246,266 2,252,483 2,258,963 2,265,719 2,272,762 2,280,105 2,287,759 2.295.739 Sheet95 18 ##### 19 ##### 20 21 Httttt 22 23 Sheet88 Sheet89 Sheet90 READY CIRCULAR REFERENCES + + 100% Search the web and Windows 0 ENG US 06:46 19-09-20

XIA 5 2020-09(2) SEP.xlsx - Microsoft Excel ? X FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW DEVELOPER Sign in AD32 : f y Q S T U V w X Y Z AA AB AC AD AE AF Credit Balance in Bond Payabl e Interest payment Interest Expense Amortization of bond Discount Period 11 12 0 2017 2017 13 ##### 1 14 ##### 2 2017 15 3 2018 2018 16 4 17 5 Jan 1 Jun 30 Dec 31 Jun 30 Dec 31 Jun 30 Dec 31 Jun 30 Dec 31 Jun 30 2019 18 ##### 6 19 7 2019 2020 2020 20 8 21 Date July 1, 2019 Jan 1, 2019 July 1, 2020 Jan 1, 2020 Jun 30, 2021 Jan 1, 2021 Jun 30, 2022 Jan 1, 2022 Jun 30, 2023 Jan 1, 2023 Jun 30, 2024 Jan 1, 2024 Jun 30, 2025 , Jan 1, 2025 , Jun 30, 2026 Jan 1, 2026 Jun 30, 2027 Jan 1, 2027 , Jun 30, 2028 Jan 1, 2028 Jun 30, 2029 9 Carrying value of bond 52,449,342 52,578,439 52,713,023 52,853,326 52,999,593 53,152,075 53,311,038 53,476,758 53,649,520 53,829,624 54,017,383 54,213,122 54,417,180 54,629,910 54,851,681 55,082,878 55,323,900 55,575,166 55,837,110 56,110,187 Debit Balance in Bond Discount 7,550,658 7,421,561 7,286,977 7,146,674 7,000,407 6,847,925 6,688,962 6,523,242 6,350,480 6,170,376 5,982,617 5,786,878 5,582,820 5,370,090 5,148,319 4,917,122 4,676,100 4,424,834 4,162,890 3,889,813 3,605,130 Credit Balance in Bond Payable 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 60,000,000 2021 2021 22 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 ##### 2,229,097 2,234,584 2,240,303 2,246,266 2,252,483 2,258,963 2,265,719 2,272,762 2,280,105 2,287,759 2,295,739 2,304,058 2,312,730 2,321,771 2,331,196 2,341,022 2,351,266 2,361,945 2,373,077 2,384,683 10 129,097 134,584 140,303 146,266 152,483 158,963 165,719 172,762 180,105 187,759 195,739 204,058 212,730 221,771 231,196 241,022 251,266 261,945 273,077 284,683 Dec 31 23 11 12 24 25 26 13 14 27 15 16 28 29 30 17 18 31 19 20 32 33 56,394,870 Windo nero Go to Settings to activate Windows Sheet88 Sheet89 Sheet90 Sheet91 Sheet92 Sheet93 Sheet94 Sheet95 Sheet96 + READY CIRCULAR REFERENCES + + 100% Search the web and Windows O ENG US 06:46 19-09-20