On January 1, 2018, Jones Jeans Co. buys a 8 year $600,000 face value bond from

Question

On January 1, 2018, Jones Jeans Co. buys a 8 year $600,000 face value bond from Rawlings Inc. The bonds pay semi-annual interest on January 1 and July 1, Coupon: 10% Yield:8% The bonds are classified as held to maturity. Prepare the following journal entries: a. b. c. d. Find the price of the bond Entry at acquisition. Entry to recognize semi-annual interest revenue at 7/1/18 Entry necessary if market value of the bond is $628,000 at 12/31/17. 2. Assume that Rawlings Inc. had issued $60 million, in total, of the bonds that were purchased by Jones Jeans Co. in number 1 (at price determined in problem 1). Prepare the journal entries a) at issuance and b) July interest payments for Rawling Inc 3. (5 points) Using the information from question 1, prepare the entry at 12/31/17 for Jones Jeans Co. under the following assumptions. Classified as available for sale Classified as trading. a. b.

Explanation / Answer

(a) Price of Bond = coupon amount (1+.04*)16# + value* (1/1.04)16

= 30000**x11.6523 + 600000*0.5339

=349569 + 320345 = 669913

*8/2 = 4 = 0.04

#8*2 = 16

**600000*10%/2 = 30000

(b) Investment in Bond a/c dr 669913

to Cash 669913

(c) Cah A/c dr 30000

to Interest Income 30000

(d) No entry required

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