Problem 1 On 1/1/2018, Football Corp. issues 3,000, 9%, $1,000 bonds. The bonds
ID: 2398903 • Letter: P
Question
Problem 1 On 1/1/2018, Football Corp. issues 3,000, 9%, $1,000 bonds. The bonds mature in 5 years and pay interest semiannually. The market rate for similar bonds is 8%. Each of $0.01 par common shares. On 1/2/2019, the bonds are trading at $54.75 per share. bond is convertible for 10 shares converted when Football's common stock is REQUIRED: 1) Prepare the journal entry for the issuance of the bonds. 2) Record all of the entries necessary for the bonds through 1/2/2019. Football has a fiscal year end of 12/31 3) Record the conversion of the bonds.Explanation / Answer
Answers
Bond Face Value
Market Interest rate (applicable for period/term)
PV of
$ 3,000,000.00
at
4.0%
Interest rate for
10
term payments
PV of $1
0.675564169
PV of
$ 3,000,000.00
=
$ 3,000,000.00
x
0.675564169
=
$ 2,026,692.51
A
Interest payable per term
at
4.5%
on
$ 3,000,000.00
Interest payable per term
$ 135,000.00
PVAF of 1$
for
4.0%
Interest rate for
10
term payments
PVAF of 1$
8.110895779
PV of Interest payments
=
$ 135,000.00
x
8.110895779
=
$ 1,094,970.93
B
Bond Value (A+B)
$ 3,121,663.44
Period
Cash payment
Interest expense
Premium on Bonds payable
Carrying Value of Bond
Issued
$ 121,663
$ 3,121,663
30-06-2018
$ 135,000
$ 124,867
$ (10,133)
$ 3,111,530
31-12-2018
$ 135,000
$ 124,461
$ (10,539)
$ 3,100,991
Balance (Total)
$ 270,000
$ 249,328
$ 100,991
Requirement
Date
Accounts title
Debit
Credit
Working
1
01-Jan-18
Cash
$ 3,121,663
[Cash received = Issue Value]
Premium on Bonds Payable
$ 121,663
[as per working]
Bonds Payable
$ 3,000,000
[face value]
[Bonds issued at a Premium]
2
30-Jun-18
Interest Expense
$ 124,867
[see working above]
Premium on Bonds Payable
$ 10,133
[see working above]
Cash
$ 135,000
[see working above]
[First semi annual interest paid]
31-Dec-18
Interest Expense
$ 124,461
[see working above]
Premium on Bonds Payable
$ 10,539
[see working above]
Cash
$ 135,000
[see working above]
[Second semi annual interest paid]
3
02-Jan-19
Bonds Payable
$ 3,000,000
[Face Value]
Premium on Bonds Payable
$ 100,991
[Balance remaining in account]
Common Stock
$ 300
[3000 bonds x 10 shares x $0.01 par]
Paid In Capiatl in excess of Par - Common Stock
$ 100,691
[remaining balance]
[Bonds payable converted into Common Stock]
Bond Face Value
Market Interest rate (applicable for period/term)
PV of
$ 3,000,000.00
at
4.0%
Interest rate for
10
term payments
PV of $1
0.675564169
PV of
$ 3,000,000.00
=
$ 3,000,000.00
x
0.675564169
=
$ 2,026,692.51
A
Interest payable per term
at
4.5%
on
$ 3,000,000.00
Interest payable per term
$ 135,000.00
PVAF of 1$
for
4.0%
Interest rate for
10
term payments
PVAF of 1$
8.110895779
PV of Interest payments
=
$ 135,000.00
x
8.110895779
=
$ 1,094,970.93
B
Bond Value (A+B)
$ 3,121,663.44
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