Question

Date

Transaction

Balance Sheet

Income Statement

Cash Flow

Assets

L

SE

Cash

AR

Inventory

Accts Pay

Bonds Payable

Cont. Cap

RE

Sales Rev

COGS

Other Revenue or Exp

Note Re: Rev and Exp

Net Income Impact

Category O I F

1/1/17

6/30/17

12/31/2017

Requirement 1:

Consider the following bond details below and answer the questions. Use the included Financial Statement Impact template to make accounting entries requested in the questions below. On January 1, 2017 Pioneer Co. issued $550,000 of 5 year 12% bonds for $592,468 yielding a market rate of 10%. Interest is payable semiannually on June 30 and December 31.

a) Confirm the bond issuance price and show your work.

b) Why are two different present value tables used to price the bond?

c) Is this bond issuing at a discount, premium or par? Explain your answer.

d) Create your own amortization table. The table should show the carrying value at January 1 as the first row. Include 2 full years of interest payments. Refer to the videos and text for amortization table examples.

e) Record the following entries on the included Financial Statement Impact Template. a. Jan 1, 2017 bond issuance b. June 30, 2017 interest payment c. Dec 31, 2017 interest payment f) This company chose to issue a bond as means to raise capital. Identify two reasons a company may choose this type of financing.

Answer 1

Transaction	Balance Sheet					Income Statement				Cash Flow
	Assets		L	SE
	Cash	AR	Bonds Payable	Cont. Cap	RE	Sales Rev	COGS	Other Revenue or Exp	Net Income Impact	Category
1/1/2017	592468		592468							F
6/30/2017	-33000		-3377		-29623			29623	-29623	O
12/31/2017	-33000		-3545		-29455			29455	-29455	O
ans 1
	Table value
	n	10
	i	5%
Cash flow	Table	Total value	Amt	PV
Par value	PVIF(I,n)	0.61391	550000	337650.5
Interest	PVIFA (I,n)	7.72173	33000	254817
		Price of the bond		592468
	working
	FV (Face Value of Bond)	550000
	PMT (Interest Per Period) (6%*55000)	33000
	N (Number of Periods)	10
	Market Rate i	5.00%
ans 2	As price of the bonds=Present value of interest payment+Prsent value of maturity value
	Here two table are used for interest payment we use PVIFA(I,n) and for PV of bond maturity
	we use PVIF(I,n)
ans 3	Bond is issued on Premium as market rate is less than coupon rate
ans d
A	B	C	D	E	F	G               $
Date	Interest Payment @6%	Interest expenses at 5%*G	Amortization of Bond C-B	cr, balance in the a/c Bond Premium a/c	Credit balance in the Bond payable	Carrying value of Bond F+E
	Credit cash	Debit Interest Expense	Bond Premium
Jan 1 2017				42468	550000	592468
June 30,2017	33000	29623	3377	39091	550000	589091
Dec,31 2017	33000	29455	3545	35546	550000	585546
June 30,2018	33000	29277	3723	31823	550000	581823
Dec,31 2018	33000	29091	3909	27914	550000	577914
	General Journal	Dr	Cr
ans e	Cash Account	$592,468
1-Jan	Bond Payable		$550,000.00
	Premium on Bonds Payable		$42,468
June 30 2017	Interest expenses	29623
	Premium on Bonds Payable	3377
	Cash		33000
Dec 31 2017	Interest expenses	29455
	Premium on Bonds Payable	3545
	Cash		33000
ans f 1) the stockholder control is intact, they don’t loose the control
2) Leverage effect. As interest is tax deductible
If any doubt please comment. If satsified rate