Question

Part 4: Big Problem - 50 PTS TOTAL *** SHOW YOUR WORK ***Journal entries must be prepared in proper format. Your Excel file should be similar to the one we used to complete Ex 14-5. On January 1, 2020, Albany Company issued 8% bonds dated January 1, 2020, with a face amount of $10 million. The bonds mature January 1, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. I Required: (1.) Determine the price of the bonds at January 1, 2020. (5 PTS). You must show all of the steps to receive full credit. (2.) Prepare the journal entry to record the bond issuance by Albany on January 1, 2020. (6 PTS). You must show your work. (3.) Prepare all 10 years of an amortization table using Excel. Make sure you label the columns appropriately. I must be able to see your formulas (do not just type numbers in the cells). Also, this must be your own work and have your electronic signature on the file. (15 PTS). (4.) Prepare the journal entries to record interest on June 30, 2020 and December 31, 2020, using the effective interest method. (6 PTS). You must show your work. (5.) What amount(s) related to the bonds would Albany Company report in its financial statements (Balance Sheet, Income Statement, and Statement of Cash Flows) dated December 31, 2020? (12 PTS). You must show your work and show how it would be properly displayed. (6.) What is the outstanding balance of the Bonds Payable on December 31, 2025? (2 pts) (7.) Prepare the journal entry for the bond's maturity on January 1, 2030. Hint: You have to assume a journal entry was made on December 31, 2029 and take that into account for your final "payoff' journal entry. [4 pts)

Answer 1

1-	Price of a bond=Using present value function in MS excel	pv(rate,nper,pmt,fv,type) rate = 10/2 =5% nper =10*2 =20 pmt = 10000000*8%*1/2 =400000 fv =10000000 type =0	PV(5%,20,400000,10000000,0)	($8,753,778.97)
2-	date	explanation	debit	credit
	Jan 1 2020	cash	8753778.97
		discount on bond payable	1246221.03
		bond payable		10000000
3-	Semi annual period	Interest paid = face value*coupon rate*1/2	Interest expense = carrying value of bond*market rate*1/2	discount amortized= Interest expense-interest paid	carrying value of discount on bonds payable	carrying value of bond = previous year balance+discount amortized
	0				1246221	8753778.97
	1	400000	437688.9485	37688.9485	1208532.1	8791467.919
	2	400000	439573.3959	39573.39593	1168958.7	8831041.314
	3	400000	441552.0657	41552.06572	1127406.6	8872593.38
	4	400000	443629.669	43629.66901	1083777	8916223.049
	5	400000	445811.1525	45811.15246	1037965.8	8962034.202
	6	400000	448101.7101	48101.71008	989864.09	9010135.912
	7	400000	450506.7956	50506.79558	939357.29	9060642.707
	8	400000	453032.1354	53032.13536	886325.16	9113674.843
	9	400000	455683.7421	55683.74213	830641.42	9169358.585
	10	400000	458467.9292	58467.92924	772173.49	9227826.514
	11	400000	461391.3257	61391.3257	710782.16	9289217.84
	12	400000	464460.892	64460.89199	646321.27	9353678.732
	13	400000	467683.9366	67683.93658	578637.33	9421362.668
	14	400000	471068.1334	71068.13341	507569.2	9492430.802
	15	400000	474621.5401	74621.54008	432947.66	9567052.342
	16	400000	478352.6171	78352.61709	354595.04	9645404.959
	17	400000	482270.2479	82270.24794	272324.79	9727675.207
	18	400000	486383.7603	86383.76034	185941.03	9814058.967
	19	400000	490702.9484	90702.94836	95238.084	9904761.916
	20	400000	495238.0958	95238.09578	-0.0112871	10000000
4-	date	explanation	debit	credit
	June 30 2020	Interest expense	437688.9485
		cash		400000
		discount on bond payable		37688.9485
	Dec 31 2020	Interest expense	439573.3959
		Interest payable		400000
		discount on bond payable		39573.39593
5-	Income statement
	Non operating expense
	Interest expense	437688.94+439573.39	877262.33
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