When Patey Pontoons issued 10% bonds on January 1, 2018, with a face amount of $

Question

When Patey Pontoons issued 10% bonds on January 1, 2018, with a face amount of $560,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2021 (4 years). Interest is paid semiannually on June 30 and December 31, (EV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use approprlate factor(s) from the tables provided.) 5.55 Required: 1. Determine the price of the bonds at January 1, 2018 2. Prepare the Journal entry to record their issuance by Patey on January 1, 2018 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, 2018 5. What is the amount related to the bonds that Patey will report In its balance sheet at December 31, 2018? 6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2018? (Ignore Income taxes.) 7. Prepare the appropriate journal entries at maturity on December 31, 2021. points eBook Print Complete this question by entering your answers in the tabs below References Req 1 Req 2 Req 3 Req 4 Req 5 and 6 Req 7 Determine the price of the bonds at January 1, 2018. (Round final answers to the nearest whole dollar.) Table values are based on: Cash Flow Interest Principal Amount Present Value Price of bonds Req 1 Req 2 >

Explanation / Answer

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 (560,000*.65160) interest expense 28000 177368 (28000*6.33457) price of bonds 542264 (please use factor table as given in your question ) 2) Date Accoounting titles & Explanations Debit Credit 1/1/2018 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% 1/1/2018 542264 06/30/18 28000 29825 1825 544088 12/31/18 28000 29925 1925 546013 06/30/19 28000 30031 2031 548044 12/31/19 28000 30142 2142 550187 06/30/20 28000 30260 2260 552447 12/31/20 28000 30385 2385 554831 06/30/21 28000 30516 2516 557347 12/31/21 28000 30653 2653 560000 total 224000 241736 17736 4) Date Accoounting titles & Explanations Debit Credit 30/6/2018 interest expense 29825 Discount on bonds 1825 cash 28000 5) December 31,2018 book value 546013 6) interest expense for 2018 59749 7) Date Accoounting titles & Explanations Debit Credit 12/31/21 interest expense 30653 Discount on bonds 2653 cash 28000 bonds payable 560,000 cash 560,000

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