Question

On January 1, 2018, NFB Visual Aids issued $860,000 of its 20-year, 8% bonds. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. NFB Visual Aids records interest expense at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2018, the fair value of the bonds was $716,000 as determined by their market value in the over-the-counter market. General (risk-free) interest rates did not change during 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1-a. Determine the price of the bonds at January 1, 2018. 1-b to 4. Prepare the necessary Journal entries. Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B to 4 Determine the price of the bonds at January 1, 2018. (Round final answer to the nearest whole dollars.) Price of the bonds < Req 1A Req 1B to 4 >

Answer 1

33 34400 34 35 36 Interest (860000 *8% *6/12) (A) P.V of annuity fr n=40,1 =5% (B) P.V of Interest (A *B) P.V of Par Value (860000 * 14205) Bond Issue Price 17.15909 590273 122163 712436 37 38 39 40 Year Cash Payment @8%/4 (A) Interest @ 10%/2 on carrying value (B) Reduction of Principal Unamortized Discount Carrying Amount (A-B) = (C) 41 42 43 01-Jan 44 30-Jun 31-Dec 34,400 34,400 35,622 35,683 1,222 1,283 147,564 146,343 145,060 712,436 713,657 714,940 45 46 47 Debit Credit 48 Date Account Titles & Explanation 2018 01-Jan Cash Discount on Bonds payable Bonds Payable (To record issue of Bonds on discount) 49 50 51 52 712,436 147,564 860,000

54 55 30-Jun Interest expense 35,622 Discount on Bonds Payable Interest Payable (To record accrual of interest on bonds and bond amortization) 1,222 34,400 56 57 58 59 35,683 60 31-Dec Interest expense Discount on Bonds Payable Cash (To record the first Interest payment) 1,283 34,400 61 62 63 64 1,060 31-Dec Unrealized holding Loss Fair value Adjustment (To record fair value) 65 66 1,060 67 68