Question

Ari Goldstein issued $300,000 of 11​%, five​-year bonds payable on January​ 1, 2018. The market interest rate at the date of issuance was 10​%, and the bonds pay interest semiannually.

Requirement 1. How much cash did the company receive upon issuance of the bonds​ payable? (Round to the nearest​ dollar.) ​(Use the factor tables provided with factors rounded to three decimal places. Round all currency amounts to the nearest​ dollar.)

Upon issuance of the bonds payable, the company received $

.

Requirement 2. Prepare an amortization table for the bond using the​ effective-interest method, through the first two interest payments.​ (Round to the nearest​ dollar.)

		Interest	Discount	Carrying
	Cash Paid	Expense	Amortized	Amount
01/01/2018
06/30/2018
12/31/2018

Requirement 3. Journalize the issuance of the bonds on January​ 1,

20182018​,

and the first and second payments of the semiannual interest amount and amortization of the bonds on June​ 30,

20182018​,

and December​ 31,

20182018.

Explanations are not required. ​(Record debits​ first, then credits. Exclude explanations from any journal​entries.)

Start by journalizing the issuance of the bonds on January​ 1,

20182018.

​ (Prepare a single compound​ entry.)

  

Date			Accounts	Debit	Credit
2018
Jan. 1

Journalize the payment of the first semiannual interest amount and amortization of the bond on June​ 30,

20182018.

​ (Prepare a single compound​ entry.)

Date			Accounts	Debit	Credit
2018
Jun. 30

Journalize the payment of the second semiannual interest amount and amortization of the bond on December​ 31,

20182018.

​ (Prepare a single compound​ entry.)

Date			Accounts	Debit	Credit
2018
Dec. 31

Answer 1

Note- The Issue price of Bond may vary by +-3% due to Present Value Factor rounding off. But steps of calculation is correct.If you want the exact answer as that of Connect, you may take the Present value factor and Present value annuity given in the system connect link and follow the below mentioned steps, you will get the same answer as that of Connect.

Requirement 1
Upon issuance of the bonds payable, the company received $	$                  311,630

Bond Interest Rate Annual	11%
No of Period	5 years
Bond Interest Rate Semi Annual	11/2=5.5%
No of Period	5x2=10 Period
Market Interest Rate Annual	10%
No of Period	5 Years
Market Interest Rate Semi Annual	10/2=5%
No of Period	5x2=10 Period

Bond Characteristics	Amount
Face Amount	$                  300,000
Interest Payment	$                    16,500	($300,000x5.5%)	11%/2=5.5%
Market Interest rate	5%	10%/2=5%
Periods to Maturity	10	5 Yearsx2 semiannual payment
Issue Price	$                  311,630	Note- This amount may vary by +-3% due to Present Value Factor rounding off. But steps of calculation is correct.
To calculate the Issue Price of the bond, we’ll use the following symbols:
(pv1,i,n) = present value of $1 discounted at i%, n periods from the present
(pva,i,n) = present value of an annuity of $1 discounted at i%, for n periods
(pv1,5%,10)	0.614
(pva,5%,10)	7.723	(0.952+0.907+0.864+0.823+0.784+0.746+0.711+0.677+0.645+0.614)
A	B	AxB
$                                                      16,500	7.723	$                                                          127,429.50
$                                                    300,000	0.614	$                                                          184,200.00
Issue Price of Bond		$                                                                311,630
Bond Premium		$                                                                  11,630

Requirement 2

Note- Interest Expenses, Premium Amortized and Carrying Amount value may vary from System Connect value by +-3% due to present value factor round off while calculating Bond issue price and Bond Premium. But steps of calculation is correct.If you want the exact answer as that of Connect, you may take the Present value factor and Present value annuity given in the system connect link and follow the below mentioned steps, you will get the same answer as that of Connect.

	Requirement 2
	Amortization Table
A	B	C	D	E	F	G
Date	Cash Paid (5.5%x Face Value $300,000)	Interest Expenses 5%x Previous Book Value in Column G	Premium Amortized (B-C)	Premium Carrying Amount	Bonds Payable Face Value	Book Value of Bond (E+F)
1-Jan-18	NA	NA	NA	$                         11,630	$     300,000.00	$                311,630
30-Jun-18	$                                                      16,500	$                    15,581	$                                                                        919	$                         10,711	$     300,000.00	$                310,711
31-Dec-18	$                                                      16,500	$                    15,536	$                                                                        964	$                            9,747	$     300,000.00	$                309,747
		(311,630x5%=15,581)
		(310,711x5%=15,536)

Requirement 3

	Journal Entries
Date	Accounts Name	Debit $	Credit $
1-Jan-18	Cash	311,630
	Bonds Payable		300,000
	Premium on Bonds Payable		11,630	($311,630-$300,000)
	( To record issue of Bonds at premium)
30-Jun-18	Interest Expenses	15,581
	Premium on Bonds Payable	919		($16,500-$15,581)
	Cash		16,500	(300,000x5.5%)
	(To record payment of semi annual interest on bond and Amortization of premium on bonds payable)			Paid Semi Annualy so 11%/2=5.5%
31-Dec-18	Interest Expenses	15,536
	Premium on Bonds Payable	964		($16,500-$15,536)
	Cash		16,500	(300,000x5.5%)
	(To record payment of semi annual interest on bond and Amortization of premium on bonds payable)			Paid Semi Annualy so 11%/2=5.5%