Question

On January 1, 2021, Instaform, Inc., issued 12% bonds with a face amount of $55 million, dated January 1. The bonds mature in 2040 (20 years). The market yield for bonds of similar risk and maturity is 14%. Interest is paid semiannually. (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, 2021. 1-b. Prepare the journal entry to record their issuance by Instaform. 2-a. Assume the market rate was 11%. Determine the price of the bonds at January 1, 2021. 2-b. Assume the market rate was 11%. Prepare the journal entry to record their issuance by Instaform. 3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Reg 2A Reg 2B Reg 3 Determine the price of the bonds at January 1, 2021. (Enter your answer in whole dollars.) Price of the bonds

Answer 1

Answer:
1.)

Interest	3,300,000	13.33171	43,994,643
Principal	55,000,000	0.06678	3,672,900
Present value price of the bond is			47,667,543

6% x 55000000 = 3300000
Present value of an ordinary annuity $1 n=40, i=7%
Present value of $1 n=40, i=7%

Cash(price determined above)	47,667,543
Discount on bonds (difference)	7,332,457
Bonds payable (face amount)		55,000,000

2)

Interest	3,300,000	16.04612	52,952,196
Principal	55,000,000	0.11746	6,460,300
Present value price of the bond is			59,412,496

Present value of an ordinary annuity $1 n=40, i=5.5%
Present value of $1 n=40, i=5.5%

Cash(price determined above)	59,412,496
Premium on bonds (difference)		4,412,496
Bonds payable (face amount)		55,000,000

3.)

Investment in bonds (face amount)	55,000,000
Premium on bond investment	4,412,496
Cash (price calculated above)		59,412,496