Reporting Financial Statement Effects of Bond Transactions On January 1, 2016, M

Question

Reporting Financial Statement Effects of Bond Transactions

On January 1, 2016, McKeown, Inc., issued $300,000 of 6%, 9-year bonds for $262,023, yielding a market (yield) rate of 8%. Semiannual interest is payable on June 30 and December 31 of each year.

Required
a. Show computations to confirm the bond issue price.
(Use a calculator or Excel for your calculations. Round your answers to the nearest dollar.)

b. Record the bond issuance, semi-annual interest payment and discount amortization on June 30, 2016 and the semi-annual interest payment and bond amortization on December 31, 2016 in the financial statement effects template.

Present value of principal repayment $Answer Present value of interest payments $Answer Selling price of bonds $Answer

Explanation / Answer

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a. Show computations to confirm the bond issue price. Present Value of Principal Repayment: Principal Repayment 300000 A PVF (18n,4%) 0.4936281 B Present Value of Principal Repayment 148088 A*B Present Value of Interest Payment: Interest Payment (300000*3%) 9000 C PVAF(18n,4%) 12.659297 D Present Value of Interest Payment 113934 C*D Selling Price of Bond 262023

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