Question

only need help wirh part 1. need to find the present value of the bonds

14 HW 0 Saved Help 4 On January 1, 2018, Essence Communications issued $810,000 of its 10-year, 8% bonds for $709,056. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Essence Communications records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2018, the market interest rate for bonds of similar risk and maturity was 9%. The bonds are not traded on an active exchange. The decrease in the market interest rate was due to a 1% decrease in general (risk-free)interest rates. (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. Using the information provided, estimate the fair value of the bonds at December 31, 2018 2. to 4. Prepare the journal entry to record interest on June 30, 2018 (the first interest payment). on December 31, 2018 (the second interest payment) and to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 to 4 Using the information provided, estimate the fair value of the bonds at December 31, 2018. (Round final answer to the nearest whole dollar.) Present value of the bonds Re Reg 2 to 4 >

Answer 1

Requirement:- Using the information provided, Estimate the fair value of the bonds at December 31, 2018.

Solution:-

Compute the Present Value

Particulars	Amount
Face Value of Bonds	$810,000
Present value factor at the end of 18 periods at marke rate 4.5%	0.4528
Present Value of the face value	$366,768

Working note:-

Annual rate = 9%, Semi-annual rate = 4.5%

Maturity Years = 18 periods [(9 Years x 2), Since, the because the bond issued on Jan 1,2018]

Formula to calculate PV factor at 18th period = (1/1.045)¹⁸ = 0.4528

Calculation of present value of Interest Paid

Particulars	Amount
Interest to be paid	$32,400
Present value annuity factor at the end of 18 periods at marke rate 4.5%	12.1599
Present value of the interest to be paid	$393,981

Interest payment = Face value of bonds * interest rate * period

Interest payment = $810,000 * 8% * 6/12 = $32,400

Formula to calculate PV annuity factor = (1/1.045)¹ + (1/1.045)² + (1/1.045)³ + (1/1.045)⁴ + (1/1.045)⁵ + (1/1.045)⁶ + (1/1.045)⁷ + (1/1.045)⁸ + (1/1.045)⁹ + (1/1.045)¹⁰ + (1/1.045)¹¹ + (1/1.045)¹² + (1/1.045)¹³ + (1/1.045)¹⁴ + (1/1.045)¹⁵ + (1/1.045)¹⁶ + (1/1.045)¹⁷ + (1/1.045)^{18 =} 12.1599

Calculation of fair value of bond as on December 31, 2018

Particulars	Amount
Present Value of face value	$366,768
Add: Present value of interest to be paid	$393,981
Fair Value of bond	$760,749

I Hope I was able to help you. Please give a THUMBS UP.

Thank you!!