Chrome File Edit View History Bookmarks People Window Help Chapter 10-Connect x

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Chrome File Edit View History Bookmarks People Window Help Chapter 10-Connect x March Madness®-XFINITY SIX jack C ? Not Secure ezto.mheducation.com/hm.tpx 6.66 points Park Corporation is planning to issue bonds with a face value of $710,000 and a coupon rate of 7.5 percent. The bonds mature in 8 years and pay interest semiannually every June 30 and December 3 January 1 of this year. Park uses an annual market rate of interest of 8.5 percent. tu 06 the vided Round your final answer to whole dollars.) 31. All of the bonds were sold on the effective-interest amortization method and also uses a discount account. Assume 1, and PVA of $1) (Use the appropriate Required o record the issuance of thelbonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Chro Journal entry worksheet Chror Record the issuance of bonds Chrom Note: Enter debits before credits. General Journal January 01 Trew Co Record entry Clear entry View general journal 2

Explanation / Answer

1. Journal Entry Date Account titles and explanation Debit Credit Jan-01 Cash $669,389.00 Discount on issue of bonds $40,611.00 Bonds payable $710,000.00 (To record issue of bonds at discount) 2. Journal Entry Date Account titles and explanation Debit Credit Jun-30 Interest expense ($669389*4.25%) $28,449.00 Discount on issue of bonds $1,824.00 Cash ($710000*7.50%*1/2) $26,625.00 (To record issue of bonds at discount) 3. Bond payable to be reported in balance sheet = Issue price + Discount amortized till June 30 = $669389+ $1824 = $671213 Working note Issue price of bond = Present value of coupon payments + Present value of face value of bond Semi-annual coupon amount = $710,000*7.5%*1/2 = $26625 Number of semi-annual coupon payments = 8years *2 = 16 Semi-annual market interest rate = 8.5%/2 = 4.25% = 0.0425 Present value of annuity = Annuity amount*{1-(1+r)-n}/r Present value of coupon payments = $26,625*(1-1.042516)/0.0425 = $304598 Present value of face value of bond = $710000/1.0425^16 = $364791 Issue price of bond = $304598 + $364791 = $669,389.

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