Question

When Patey Pontoons issued 4% bonds on January 1, 2021, with a face amount of $660,000, the market yield for bonds of similar risk and maturity was 5%. The bonds mature December 31, 2024 (4 years). Interest is paid semiannually on June 30 and December 31. (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. Determine the price of the bonds at January 1, 2021. 2. Prepare the journal entry to record their issuance by Patey on January 1, 2021. 3. Prepare an amortization schedule that determines interest at the effective rate each period. 4. Prepare the journal entry to record interest on June 30, 2021. 5. What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2021? 6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2021? (Ignore income taxes.) 7. Prepare the appropriate journal entries at maturity on December 31, 2024. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3 Reg 4 Req 5 and 6 Req 7 Determine the price of the bonds at January 1, 2021. (Round final answers to the nearest whole dollar.) Table values are based on: n = i = % Amount Present Value Cash Flow Interest Principal Price of bonds Req Reg 2 >

Answer 1

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А в с D E F G H 1 J K 1 2 3 4 Face amount Interest Market rate Years 660000 4% 4 5% 5 6 4 7 8 Chart Values are based on: 9 1 8 Half years 10 11 0.025 Semi annual Table Value 0.820746571* 12 Cash Flow Principal Interest (Annuity) Price of Bonds Amount Present Value 660000/= 541692.7367 13200/= 94645.81061 636338.5473 13 7.1701 * 14 15 16 2 Journal Entries 17 Credit 18 Date Particulars 1/1/2021 Cash A/c Dr Discount on Bond Payable To bonds payable (Being bond issued at Discount) Debit 636338.5473 23661.45265 19 20 660000 21

AB с D E F H 22 23 3 24 25 26 27 28 Date 1/1/2021 6/30/2021 12/31/2021 6/30/2022 12/31/2022 6/30/2023 12/31/2023 6/30/2024 12/31/2024 Bond Amortization Schedule Cash interest Interest Expense Discount amortization Carrying value 636338.5473 13200 15908.46368 2708.463684 639047.011 13200 15976.17528 2776.175276 641823.1863 13200 16045.57966 2845.579658 644668.766 13200 16116.71915 2916.719149 647585.4851 13200 16189.63713 2989.637128 650575.1222 13200 16264.37806 3064.378056 653639.5003 13200 16340.98751 3140.987507 656780.48781 13200 16419.5122 3219.512195 660000 29 30 31 32 33 34 35 36 4 37 Debit Credit 15908.46368 38 Journal Entries Date Particulars 6/30/2021 Interest Expense Dr To Discount on bond payable To Cash (To record Interest on June 30, 2021) 39 2708.463684 40 13200 41 42 43 5 Bonds reported on December 31, 2021 = 641823.1863 44 45 6 Interest expense to be reported in Income statement 31884.63896 16

AB с D E F 46 47 7 Journal Entries 48 Debit Credit 16419.5122 49 Date Particulars 12/31/2024 Interest Expense Dr To Discount on bond payable To Cash 50 3219.5121951 13200 51 52 53 660000 12/31/2024 Bond Payable Dr To Cash 54 660000 55

For calculation ref:

А B с D E F H 1 2 3 4 Face amount Interest Market rate Years 660000 0.04 0.05 5 6 4 7 8 Chart Values are based on: 9 1 Half years 10 11 n =E6*2 i =E5/2 Semi annual Table Value =1/(1+E5/2)^(E6*2) * =PV(E5/2, E6*2,-1) Cash Flow Principal Interest (Annuity) Price of Bonds 12 Amount =E3 =G12*14/2 Present Value =E12*G12 =E13 G13 =SUM(112:113) 13 14 15 16 Journal Entries 17 Credit 18 2 Date Particulars =C25 Cash A/c Dr Discount on Bond Payable To bonds payable (Being bond issued at Discount) Debit =114 =F20-E18 19 20 =E3 21 22

A B с D E F H 22 23 3 Bond Amortization Schedule Cash interest Interest Expense 24 Date 25 44197 26 27 28 44377 =G13 44561 =D26 44742 =D27 44926 =D28 =G25*E$5/2 =G26*E$5/2 =G27*E$5/2 =G28*E$5/2 =G29*E$5/2 =G30*E$5/2 =G31*E$5/2 =G32*E$5/2 Discount amortization Carrying value =E18 =E26-026 =G25+F26 =E27-D27 =G26+F27 =E28-D28 =G27+F28 =E29-D29 =G28+F29 =E30-D30 =G29+F30 =E31-D31 =G30+F31 =E32-D32 1=G31+F32 =E33-D33 =G32+F33 29 30 31 145107 =D29 45291 =D30 45473 =D31 45657 =D32 32 33 34 35 36 Journal Entries 37 Credit Debit =E26 38 4 Date Particulars =C26 Interest Expense Dr To Discount on bond payable To Cash (To record Interest on June 30, 2021) 39 =F26 =D26 40 41 42 43 5 Bonds reported on December 31, 2021 = =G27 44 45 6 Interest expense to be reported in Income statement 1=E27+E26

A B C D E F 46 47 7 Journal Entries 48 Date Credit Debit =E33 49 =C33 Particulars Interest Expense Dr To Discount on bond payable To Cash 50 =F33 =D33 51 52 53 =C49 =G33 Bond Payable Dr To Cash 54 =E53 55