B. Serial Bonds On January 1, 2009, Rice issued $300,000 of serial bonds. The st
ID: 2449105 • Letter: B
Question
B. Serial Bonds On January 1, 2009, Rice issued $300,000 of serial bonds. The stated, nominal interest rate is 6% annual. Interest is paid each December 31. The bonds mature in $100,000 amounts beginning December 31, 2009. The legal schedule of payments is as follows: Date Interest Principal Balance Jan. 1, 2009 300,000 Dec. 31, 2009 18,000 100,000 200,000 Dec. 31, 2010 12,000 100,000 100,000 Dec. 31, 2011 6,000 100,000 0 1. The bonds sold to yield an effective interest rate of 6.25% annual. Calculate the sales price of the bond issue. 2. Prepare an amortization table for 2009 Date Cash Payment Effective Interest Principal Balance Jan. 1, 2009 Dec. 31, 2009 3. Record the entry to be made on December 31, 2009 to make the required annual payment
Explanation / Answer
SOLUTION :
DATE
INTEREST
PRINCIPAL
BALANCE
JAN 1.2009
0
0
300000
DEC 31 2009
18000
100000
200000
DEC 31 2010
12000
100000
100000
DEC 31 2011
6000
100000
0
1.Calculation of Sale Price of bond
Year
Interest & Principal Payment
Discount factor @6.25%
Present Value
1
118,000.00
0.94
111,058.82
2
112,000.00
0.89
99,211.07
3
106,000.00
0.83
88,372.89
SALES PRICE
298,642.78
2.Amortisation Schedule
DATE
CASH PAYMENT
EFFECTIVE INT*
PRINCIPAL
BALANCE
JAN 1 2009
0
0
300000
DEC 31 2009
118000
18665.17
100000
200000
SALE PRICE * EFFECTIVE INTEREST RATE
298642.8*0.0625
3.Journal entry
INTEREST
18665.17
BONDS
100000
DISCOUNT ON BONDS PAYABLE
(18665.17-18000)
665.17
CASH
118000
DATE
INTEREST
PRINCIPAL
BALANCE
JAN 1.2009
0
0
300000
DEC 31 2009
18000
100000
200000
DEC 31 2010
12000
100000
100000
DEC 31 2011
6000
100000
0
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