Question

Ltd. is authorized to issue

$ 3 comma 000 comma 000$3,000,000

of

44?%,

1010?-year

bonds payable. On December? 31,

20142014?,

when the market interest rate is

77?%,

the company issues

$ 2 comma 400 comma 000$2,400,000

of the bonds.

ChampChamp

Ltd. amortizes bond discount by the? effective-interest method. The semiannual interest dates are June 30 and December 31.

Requirements

1.	Use the PV function in Excel Superscript ®Excel® to calculate the issue price of the bonds.
2.	Prepare a bond amortization table for the first year of the bonds.
3.	Record issuance of bonds payable on December? 31, 20142014?; the first semiannual interest payment on June? 30, 20152015?; and the second payment on December? 31, 20152015.

Answer 1

Par value of bonds				3,000,000
Stated rate of Interest				4%
Period				10Years
Semi Annual Interest (3000,000*4%*2/12)				60000
Annuity factor for 20 periods at 3.5%				14.2124
Present value factor for Yr-20				0.5026
Present value of Interest received				852744
Present value of Maturity				1507800
Issue price				2360544
Amort chart
Date	Cash int	Int Exp	Discount	Unamortized	Carrying
			Amortized	Discount	Value of Bonds
31.12.2014				639456	2360544
30.06.2015	60000	82619	22619	616,837	2383163
31.12.2015	60000	83411	23411	593,426	2359752
Journal Entries:
Date	Accounts title and explanations				Debit $	Credit $
31.12.14	Cash account Dr.				2360544
	Discount on Bonds payable Dr.				639456
	Bonds payable					3,000,000
30.06.15	Interest expense Account Dr.				82619
	Cash account					60000
	Discount on Bonds payable					22619
31.12.15	Interest expense Account Dr.				83411
	Cash account					60000
	Discount on Bonds payable					23411