On January 1, 2018, Instaform, Inc., issued 10% bonds with a face amount of $58
ID: 2340270 • Letter: O
Question
On January 1, 2018, Instaform, Inc., issued 10% bonds with a face amount of $58 million, dated January 1. The bonds mature in 2037 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually.
Required:
1-a. Determine the price of the bonds at January 1, 2018.
1-b. Prepare the journal entry to record their issuance by Instaform.
2-a. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2018.
2-b. Assume the market rate was 9%. Prepare the journal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.
Explanation / Answer
1-a. Determine the price of the bonds at January 1, 2018. Semiannual cash interest 10% x 58,000,000 x 6/12 2900000 Present value of interest payments @ 6% 15.0463*2900000 43634270 Present value of $58,000,000 0.09722 x 58,000,000 5638760 Price of bonds 49273030 General Journal Debit Credit Cash 49273030 Discount on Bonds payable 8,726,970 Bonds payable 58,000,000 2 Semiannual cash interest: 10% x 58,000,000 x 6/12 2900000 Present value of interest payments @ 4.5% 18.40158*2900000 53364582 Present value of $58,000,000 0.17193*58000000 9971940 Price of bonds 63336522 General Journal Debit Credit Cash 63336522 Primium on Bonds payable 5,336,522 Bonds payable 58,000,000 3 Semiannual cash interest: 10% x 58,000,000 x 6/12 2900000 Present value of interest payments @ 4.5% 18.40158*2900000 53364582 Present value of $58,000,000 0.17193*58000000 9971940 Price of bonds 63336522 General Journal Debit Credit Investment in bonds 58,000,000 Primium on Bonds payable 5,336,522 Bonds payable 63336522
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