On September 30, 2015, Evan Tube Inc. issued $2,600,000 of 8% bonds plus accrued
ID: 2454928 • Letter: O
Question
On September 30, 2015, Evan Tube Inc. issued $2,600,000 of 8% bonds plus accrued interest. Interest is payable semiannually on January 1 and July 1 with the bonds maturing July 1, 2025. The market rate of interest at the time of issuance was 10% and Evan uses the effective-interest method to amortize any premium or discount. Legal and other costs of $20,000 were incurred in connection with the issue and are being amortized on a straight-line basis over the life of the bond.
Periods
PV of a Single Sum 10%
PV of an Annuity at 10%
PV of a Single Sum 8%
PV of an Annuity at 8%
PV of a Single Sum 5%
PV of an Annuity at 5%
PV of a Single Sum 4%
PV of an Annuity at 4%
10
0.38554
6.14457
0.46319
6.71008
0.61391
7.72173
0.67556
8.11090
20
0.14864
8.51356
0.21455
9.81815
0.37689
12.46221
0.45639
13.59033
(1)What is the present value of the $2,600,000 bonds on September 30, 2015? Show all supporting calculations.
.
.
.
.
(2)Prepare the relevant bond amortization table through January 1, 2017:
.
.
.
.
(3)Prepare the relevant journal entries for the bonds on the following dates :
.
September 30, 2015
.
December 31, 2015
.
January 1, 2016
.
July 1, 2016
.
.
(4)On December 31, 2016, Evan called $1,300,000 of the bonds at 101.5 in accordance with the provisions of the bond indenture and retired them. What is the gain or loss on the transaction? Show all relevant calculations.
.
.
.
(5)Prepare all the necessary journal entries for December 31, 2016.
.
.
.
Periods
PV of a Single Sum 10%
PV of an Annuity at 10%
PV of a Single Sum 8%
PV of an Annuity at 8%
PV of a Single Sum 5%
PV of an Annuity at 5%
PV of a Single Sum 4%
PV of an Annuity at 4%
10
0.38554
6.14457
0.46319
6.71008
0.61391
7.72173
0.67556
8.11090
20
0.14864
8.51356
0.21455
9.81815
0.37689
12.46221
0.45639
13.59033
Explanation / Answer
(1) Semiannual interest payable = $2600000*4%
= $1040000
P.V. of the bond = P.V. of the interest on bond discounted at Market rate + P.V. of redeemable value of bond discounted at Market rate.
= $104000*12.46221 + 2600000*0.37689
= $22,75,984
(2) Amortization schedule
(3) Journal Entries
Date Interest payment stated@8% Interest expense @10% Amortisation of bond discount Debit balance in the account bond discount Credit balance in the account bond payable Book value of the bond 324016 2600000 2275984 1.jan.16 52000 56900 4900 319116 2600000 2280884 31.july.16 104000 114044 10044 309072 2600000 2290928 1.jan.17 104000 114547 10546 298526 2600000 2301474 31.july.17 104000 115074 11074 287452 2600000 2312548 1.jan.18 104000 115627 11627 275825 2600000 2324175 31.july.18 104000 116209 12209 263616 2600000 2336384 1.jan.19 104000 116819 12819 250797 2600000 2349203 31.july.19 104000 117460 13460 237337 2600000 2362663 1.jan.20 104000 118133 14133 223204 2600000 2376796 31.july.20 104000 118840 14840 208364 2600000 2391636 1.jan.21 104000 119582 15582 192782 2600000 2407218 31.july21 104000 120361 16361 176421 2600000 2423579 1.jan.22 104000 121179 17179 159242 2600000 2440758 31.july.22 104000 122038 18038 141204 2600000 2458796 1.jan.23 104000 122940 18940 122264 2600000 2477736 31.july.23 104000 123887 19887 102380 2600000 2497620 1.jan.24 104000 124881 20881 81499 2600000 2518501 31.july.24 104000 125925 21925 59574 2600000 2540426 1.jan.25 104000 127021 23021 36552 2600000 2563447 31.july.25 104000 140552 36552 0 2600000 2600000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.