Question

On January 1, 2020, Mania Enterprises issued 10-year. 12% bonds dated January 1, 2020. The bonds have a face amount of $200,000, and they pay interest semiannually on June 30 and December 31. At the date the bonds were issued, the market yield for similar bonds was 10%.

Required: 1. Create a table like the shown one below on your answer sheet. Enter the information given in this problem into that table. Enter the words, “Solve for” to indicate which of these five variables you think you are supposed to compute. N I% PV PMT Timing Note: Timing is either “beginning” or “end.” FV

2. Compute the issue price of these bonds.

3. Prepare the journal entry to record the issuance of these bonds.

Answer 1

Calculation is shown below:

A B с D E 1 2 The price of bond needs to be computed and thus variable PV will have to be solved 3 N 20 4 1% 5.00% 5 PMT $12.000 6 Timing End 7 FV $200,000 8 PV $224,924.42 Solve 9 10 Thus, price of bond is $224,924.42 11 12 3 13 Record journal entry for issue of bonds 14 Date General Journal Debit Credit 15 1-Jan-20 Cash $224,924 16 Premium on bonds payable $24,924 17 Bonds payable $200,000 18 (To record issue of bonds)

Working is shown below:

B с D =10*2 =10%/2 =200000*(12/2) End 200000 =PV(B4,B3-B5,-B7,0) Solve A 1 2 The price of bond needs to be computed and thus variable PV will have to be solved 3 N 4 19 5 PMT 6 Timing 7 FV 8 PV 9 10 Thus, price of bond is $224,924.42 11 123 13 Record journal entry for issue of bonds 14 Date 15 43831 16 17 18 Credit Debit =B8 General Journal Cash Premium on bonds payable Bonds payable (To record issue of bonds) =C15-D17 200000