Imai Company issued a $1-million bond that matures in five years. The bond has a

Question

Imai Company issued a $1-million bond that matures in five years. The bond has a 9 percent coupon rate. When the bond was issued, the market rate was 8 percent. The bond pays interest twice per year, on June 30 and December 31

Record the issuance of the bond on June 30. (Enter your answers in dollars not in millions, rounded to nearest whole dollar. Round time value factor to 4 decimal places. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Semi-annual Coupon Amount = 10,00,000*9%*(1/2)

= $45,000

Semi-annual market rate of Interest (Required rate of return)= 8/2 = 4%

No of semi-annual period = 5*2 = 10

..

Present value of the Bond = 45000*PVIFA(4%,10) + 10,00,000*PVIF(4%,10)

=45,000*8.1109 +10,00,000*0.6756

= 364,991 + 675,600

= $1040,591

..

Debit Bank = 1040,591

Credit 9% Bond = 1000,000

Credit Premium on issue of Bond = 40,591

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