I need hel with letter #b On June 1, 2009, Everly Bottle Company sold $1,000,000

Question

I need hel with letter #b

On June 1, 2009, Everly Bottle Company sold $1,000,000 in long-term bonds for $877600. Thebonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. Thebonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method. On June 1, 2009, Everly Bottle Company sold $400,000 in long-term bonds for $351,040. Thebonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. Thebonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method.

Instructions

(a)Construct a bond amortization table for this problem to indicate the amount of interestexpense and discount amortization at each May 31. Include only the first four years. Makesure all columns and rows are properly labeled. (Round to the nearest dollar.)(b)The sales price of $351,040 was determined from present value tables. Specifically explainhow one would determine the price using present value tables.(c)Assuming that interest and discount amortization are recorded each May 31, prepare theadjusting entry to be made on December 31, 2011. (Round to the nearest dollar.)

Explanation / Answer

a. EVERy Bottle company Details AMT $ Bond Face value          1,000,000 Market Price             877,600 Intereat rate stated 8% Annual Interest payable                80,000 Effective Interest rate 10% Amortization Schedules Date Interest Payable Cr Interest Expense @10% Dr Discount Amortization Cr Book Value Bond Cr May 31 ,2009 877,600 May 31 ,2010                80,000                   87,760              7,760 885,360 May 31 ,2011                80,000                   88,536              8,536 893,896 May 31 ,2012                80,000                   89,390              9,390 903,286 May 31 ,2013                80,000                   90,329           10,329 913,614 b. Discounting cash flows with PV factor for getting Bond Price today Date Cash Flow Dsicount factor @10% May 31 ,2010                80,000                     0.909        72,720.0 May 31 ,2011                80,000                     0.826        66,080.0 May 31 ,2012                80,000                     0.751        60,080.0 May 31 ,2013                80,000                     0.683        54,640.0 May 31 ,2014                80,000                     0.621        49,680.0 May 31 ,2015                80,000                     0.564        45,120.0 May 31 ,2016                80,000                     0.513        41,040.0 May 31 ,2017                80,000                     0.467        37,360.0 May 31 ,2018                80,000                     0.424        33,920.0 May 31 ,2019          1,080,000                     0.386     416,880.0         877,520 The calculation above shows the use of PV factor for each years cash flow to get   discounted PV . Thus the total of dicunted PV of interest and maturity value using PV factors for each year @10% gives the Bond price today c. Journal Entry Date Account Title Dr $ Cr $ Dec 31. 2011. Interest Payable                   46,667 Interest Expense                52,144 Bond Discount                       5,477 Second Bond Details AMT $ a Bond Face value             400,000 Market Price             351,040 Intereat rate stated 8% Annual Interest payable                32,000 Effective Interest rate 10% Amortization Schedules Date Interest Payable Cr Interest Expense @10% Dr Discount Amortization Cr Book Value Bond Cr May 31 ,2009 351,040 May 31 ,2010                32,000                   35,104              3,104 354,144 May 31 ,2011                32,000                   35,414              3,414 357,558 May 31 ,2012                32,000                   35,756              3,756 361,314 May 31 ,2013                32,000                   36,131              4,131 365,446 b. Discounting cash flows with PV factor for getting Bond Price today Date Cash Flow Dsicount factor @10% May 31 ,2010                32,000                     0.909        29,088.0 May 31 ,2011                32,000                     0.826        26,432.0 May 31 ,2012                32,000                     0.751        24,032.0 May 31 ,2013                32,000                     0.683        21,856.0 May 31 ,2014                32,000                     0.621        19,872.0 May 31 ,2015                32,000                     0.564        18,048.0 May 31 ,2016                32,000                     0.513        16,416.0 May 31 ,2017                32,000                     0.467        14,944.0 May 31 ,2018                32,000                     0.424        13,568.0 May 31 ,2019             432,000                     0.386     166,752.0         351,008 approx The calculation above shows the use of PV factor for each years cash flow to get   discounted PV . Thus the total of dicunted PV of interest and maturity value using PV factors for each year @10% gives the Bond price today c. Adjusting Entry Dec2011 Journal Entry Date Account Title Dr $ Cr $ Dec 31. 2011. Interest Payable                   18,667 Interest Expense                20,858 Bond Discount                       2,191

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