Question

Illustration #1 - BOND issued @ PAR Collandra Co. issues $100,000 Bond on Jan 1, 2020, dae in 5 years on Dec 31, 2024 with 7% stated interest rate payable annually a year-end. At the time of issue, the market rate for such boods is also 7% D. Prepare the Joumal entry for the issuance of the band, subsequent payments of interest and motivation of discounts, and final payment of the principal Date Accounts Debe Cerdit Jan 1, 2010 Dec 31, 2020 A Compute the present value of the bond IV of the principal: PV of the interest payments PV (selling price of the bonds Dec 31, 2021 Dec 31, 2022 B. Interest Computation & Amortization of Discounts or Premium Interest Computation Discount or Premium Dec 31, 2003 Dec 31, 20:24 C Prepare Bond Amortization Schedule Bond Amortization Schedule Annual Interest Payment 5-Year, 7 Seated Interest Rand Sell to Yiell market rate 29 Dane Ini Carine Pald Premium mm Vale And Jan 1, 2020 Dec 31, 2010 Dec 31, 2021 Dec 31, 2022 Dec 31, 2003 Dec 31, 2024

Answer 1

Answer A.
Face Value of Bonds = $100,000

Annual Coupon Rate = 7.00%
Annual Coupon = 7.00% * $100,000
Annual Coupon = $7,000

Time to Maturity = 5 years
Annual Interest Rate = 7.00%

PV of Principal = $100,000 * PV of $1 (7.00%, 5)
PV of Principal = $100,000 * 0.713
PV of Principal = $71,300

PV of Interest Payment = $7,000 * PVA of $1 (7.00%, 5)
PV of Interest Payment = $7,000 * 4.100
PV of Interest Payment = $28,700

PV of the Bonds = PV of Principal + PV of Interest Payment
PV of the Bonds = $71,300 + $28,700
PV of the Bonds = $100,000

Answer B.
Premium (Discount) on Bonds Payable = Selling Price of the Bonds – Face value of the bonds
Premium (Discount) on Bonds Payable = $100,000 - $100,000
Premium (Discount) on Bonds Payable = $0

There is neither premium nor discount on Bonds.

Interest Payment = Face Value * Coupon Rate * Period
Interest Payment = $100,000 * 7% * 1
Interest Payment = $7,000

Answer C.

Bond Amortization Schedule Annual Interest Payment 5-Year, 7% Stated Interest Bond sold to Yield market rate 7% Discount or Discount or Interest Premium Bonds Premium Cash Paid Expense Amortized Payable Balance 100,000 0 7,000 7,000 이 100,000 7,000 7,000 이 100,000 7,000 7,000 0 100,000 7,000 7,000 100,000 0 7,000 7,000 100,000 Date Jan 1, 2020 Dec 31, 2020 Dec 31, 2021 Dec 31, 2022 Dec 31, 2023 Dec 31, 2024 0 Carrying Value 100,000 100,000 100,000 100,000 100,000 100,000 0 0 0

Answer D. Credit Date Jan 1, 2020 Debit 100,000 Accounts Cash Bonds Payable (To record issuance of Bonds) 100,000 7,000 Dec 31, 2020 Interest Expense Cash (To record annual interest payment) 7,000 7,000 Dec 31, 2021 Interest Expense Cash (To record annual interest payment) 7,000 7,000 Dec 31, 2022 Interest Expense Cash (To record annual interest payment) 7,000 7,000 Dec 31, 2023 Interest Expense Cash (To record annual interest payment) 7,000 7,000 Dec 31, 2024 Interest Expense Cash (To record annual interest payment) 7,000