Question

Problem 1: Issuing Bonds Payable (9 points) 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 1% PV PMT Timing FV Note: Timing is either “beginning" or "end." 2. Compute the issue price of these bonds. You may use a financial calculator, an Excel function, or the tables presented on page 5 of this exam booklet to do the calculations. 3. Prepare the journal entry to record the issuance of these bonds.

Answer 1

answer 1
N = 20 periods ( 10 years * 2 )
I% = 5% ( 10 /2 )
PV = 224926 ( from answer 2 )
PMT = (200000 * 12% / 2) = 12000
Timing = end
FV = 200000
answer 2
Issue price = 200000 * PVIF (20, 5% ) + 12000 * PVIFA ( 20, 5% )
200000 * 0.3769 + 12000 * 12.4622
75380 + 149546 = $ 224926
Answer 3
Cash	224926
Premium on bonds payable		24926
Bonds payable		200000