Question

When Patey Pontoons issued 10% bonds on January 1, 2021, with a face amount of $560,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2024 (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, 2021. 2. Prepare the journal entry to record their issuance by Patey on January 1, 2021. 3. Prepare an amortization schedule that determines interest at the effective rate each period. 4. Prepare the journal entry to record interest on June 30, 2021. 5. What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2021? 6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2021? (Ignore income taxes.) 7. Prepare the appropriate journal entries at maturity on December 31, 2024. Complete this question by entering your answers in the tabs below. Reg 1 Req2 Req3 Req 4 Reg 5 and 6 Reg 7 Determine the price of the bonds at January 1, 2021. (Round final answers to the nearest whole dollar.) Table values are based on: n = Cash Flow Amount Present Value Interest Principal Price of bonds Req1 Req2 >

Answer 1

	principal				560,000
	interest paid on bonds 560,000*5%=				28000
	For Principal use PV of $1 table at 5.5% for 8 years
	for interest use PV of ordinary annuity table at 5.5% for 8 years
1)	Calculation of bonds issue price
	table values are based on
	n=	8
	i=	5.50%
	Cash flow		Amount	PV
	principal		560,000	364896		(860,000*.65160)
	interest expense		28000	177368		(34400*6.33457)
	price of bonds			542264
	(please use factor table as given in your question )
2)	Date	Accoounting titles & Explanations				Debit	Credit
	1/1/2021	Cash				542264
		Discount on bonds payable				17,736
		Bonds payable					560,000
3)	interest	cash	bond	discount	carring
	period	interest	interest	amortizatioon	value
	end		expense
			5.50%
	1/1/2021				542264
	06/30/21	28000	29825	1825	544088
	12/31/21	28000	29925	1925	546013
	06/30/22	28000	30031	2031	548044
	12/31/22	28000	30142	2142	550187
	06/30/23	28000	30260	2260	552447
	12/31/23	28000	30385	2385	554831
	06/30/24	28000	30516	2516	557347
	12/31/24	28000	30654	2653	560000
	total	224000	241737	17736
4)	Date	Accoounting titles & Explanations				Debit	Credit
	30/6/2021	interest expense				29825
		Discount on bonds					1825
		cash					28000
5)	December 31,2021 book value			546013
6)	interest expense for 2021			59749
7)
	Date	Accoounting titles & Explanations				Debit	Credit
	12/31/24	interest expense				30654
		Discount on bonds					2653
		cash					28000
		bonds payable				560,000
		cash					560,000