January 1, 2018: Xenith Corporation issued 15 year, 6% bonds with a face value o

Question

January 1, 2018: Xenith Corporation issued 15 year, 6% bonds with a face value of $1,625,000. The bonds were sold to yield 7%. Interest is payable semi-annually on January 1 and July 1. Effective rate amortization is to be used.

1. What is the issue price of the bonds? (Show financial calculator inputs)

2. Using Excel, prepare an amortization table for the entire bond term. (Table should be properly labeled and neatly presented. Amounts should have commas and be rounded to the nearest dollar.)

3. Record the bond issuance on 1/1/18.

4. Assume the company prepares financial statements semi-annually on June 30 and December 31. Prepare the appropriate adjusting entries for June 30, 2018 and December 31, 2018 for interest and for amortization of the discount or premium.

5. What accounts related to this bond would be shown on the 12/31/18 balance sheet? Show in the proper sections.

Current Liabilities:

Long-term Liabilities:

6. On January 1, 2022, Xenith Corporation paid the interest payment due on that date and then called all the bonds at 103. What is the amount of gain or loss on this call? Show computation. Prepare all necessary journal entries for the call date. January 1, 2022

Explanation / Answer

Solution 1:

Face Value of bond = $1,625,000

Maturity = 15 years, 30 half years

Coupon rate = 6%, 3% semi annual

Market Rate of return (Yield) = 7%, 3.5% semi annual

Sloution 2:

Solution 3:

Solution 4:

Note: As per Chegg Policy, four subparts have been solved. Please post another question for remaining parts.

Calculation of Issue Price of Bond Particulars Period PV Factor @ 3.5% Amount Present Value Face Value 30th period 0.356278 $1,625,000.00 $578,952.42 Interest Payment 1st period - 30th period 18.392045 48750 $896,612.21 Total Present Value Of Bond (Issue Price) $1,475,564.63

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