Question

when Patey Pontoons issued 10% bonds on January 1, 2013, with a face amount of $720,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2016 (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, 2013. Table values are based on: Cash Flow Amount Present Value Interest Principal Price of bonds

2.

Prepare the journal entry to record their issuance by Patey on January 1, 2013. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)

3. Prepare an amortization schedule that determines interest at the effective rate each period Semiannual Interest Period-End Bond Interest Expense Discount Amortization Cash Interest Carrying Value 01/01/2013 06/30/2013 12/31/2013 06/30/2014 12/31/2014 06/30/2015 12/31/2015 06/30/2016 12/31/2016 Total
4.

Prepare the journal entry to record interest on June 30, 2013. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)

5.

What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2013? December 31,2013 net liability

     
6.

What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2013? (Ignore income taxes.) Interest expense for 2013

     
7.

Prepare the appropriate journal entries at maturity on December 31,2016. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

     
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Answer #1
req 1.
Price of bonds
n = 8
I = 5.50%
Cashflow Amount Present value
Interest (720000*10% *6/12) 36000 228044.2 (36000*6.33456)
Principal 720000 469151.3 (720000*0.651599)
price of bonds 697195.4
Req 2.
Cash account 697195
Discount on bonds payable 22805
   Bonds payable 720,000
Rreq 3.
Amort chart
Period Cash Int Int exp Discount Carrying value
Amortized
01.01.13 697195
30.06.13 36000 38,346 2,346 699,541
31.12.13 36000 38,475 2,475 702,015
30.06.14 36000 38,611 2,611 704,626
31.12.14 36000 38,754 2,754 707,381
30.06.15 36000 38,906 2,906 710,287
31.12.15 36000 39,066 3,066 713,352
30.06.16 36000 39,234 3,234 716,587
31.12.16 36000 39,413 3,413 720,000
Rreq 4.
30.06.13 Interest expenses 38346
    Cash account 36000
    Discount on bonds payable 2346
Req 5.
Bonds payable (net)
Bonds payable-Gross 720000
less: unamortized discount on bonds 17984
(22805-2346-2475)
Net Bonds payable 702016
Req 6.
Interest expenses for 2013
Interest expense on 30.06.13 38346
Interest expenses on 31.12.13 38475
Total Interest expense for 2013 76821
Req 7.
31.12.16 Bonds payable 720000
      Cash account 720000
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