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When Patey Pontoons issued 6% bonds on January 1, 2021, with a face amount of $600,000, the market yield for bonds of similar

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Answer #1

Solution 1:

Chart Values are based on:
n= (4 Years*2) 8 Half years
i= (11%/2) 5.00% Semi annual
Cash Flow Table Value * Amount = Present Value
Principal 0.676839 * $600,000 = $406,104
Interest (Annuity) [$800,000*10%*6/12] 6.463213 * $18,000 = $116,338
Price of Bonds $522,441

Solution 2:

Patey Pontoons
Journal Entries
Date Particulars Debit Credit
01-Jan-21 Cash A/c Dr $522,441
Discount on Bond Payable $277,559
      To bonds payable $800,000
(Being bond issued at Discount)

Solution 3:

Bond Amortization Schedule
Date Cash interest Interest Expense Discount amortization Unamortized discount Carrying value
01-Jan-21 $277,559 $522,441
30-Jun-21 $18,000 $26,122 $8,122 $269,436 $530,564
31-Dec-21 $18,000 $26,528 $8,528 $260,908 $539,092
30-Jun-22 $18,000 $26,955 $8,955 $251,954 $548,046
31-Dec-22 $18,000 $27,402 $9,402 $242,551 $557,449
30-Jun-23 $18,000 $27,872 $9,872 $232,679 $567,321
31-Dec-23 $18,000 $28,366 $10,366 $222,313 $577,687
30-Jun-24 $18,000 $28,884 $10,884 $211,429 $588,571
31-Dec-24 $18,000 $29,429 $11,429 $200,000 $600,000

Solution 4:

Journal Entries
Date Particulars Debit Credit
30-Jun-21 Interest Expense Dr $26,122
      To Discount on bond payable $8,122
      To Cash $18,000
(To record Interest on June 30, 2021)

Solution 5:

Bonds reported on December 31, 2021 = 539092

Solution 6:

Interest expense to be reported in Income statement = 52650

Solution 7:

Journal Entries
Date Particulars Debit Credit
31-Dec-24 Interest Expense Dr $29,429
      To Discount on bond payable $11,429
      To Cash $18,000
31-Dec-24 Bond Payable Dr $800,000
      To Cash $800,000
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