Question: What is the price of the bond? A. $3,152,270.76 B. $3,187,305.54 C. $3
ID: 2522748 • Letter: Q
Question
Question: What is the price of the bond?
A. $3,152,270.76
B. $3,187,305.54
C. $3,215,852.37
D. $3,330,744.36
What is the amount of the bond premium?
A. $330,744.36
B. $187,305.54
C. $152,270.76
D. $215,852.37
Bonds: $3,000,000 Par Value
Semiannual Interest Payments
Three-Year Life
Annual Contract Rate: 12%
Annual Market Rate: 10%
Softbyte Inc.
Balance Sheet
December 31, 2017
Assets
Cash $500,000
Accounts Receivable 700,000
Inventory 300,000
Property, Plant & Equipment 900,000
Accumulated Depreciation (100,000) 800,000
Total Assets $2,300,000
Liabilities & Equity
Accounts Payable $300,000
Notes Payable 1,000,000
Common Stock 500,000
Retained Earnings 500,000
Total Liabilities & Equity $2,300,000
Instructions:
Open the balances in the ledger accounts.
Post the journal entries to the general ledger.
Prepare an income statement, statement of retained earnings, balance sheet, and statement of cash flows-indirect method.
Journal Entries for January 2013
Transaction 1: Services Provided for Cash
Description: Receives $155,000 cash from customers for programming services it has provided.
Journal Entry: Dr. Cr.
Cash 155,000
Sales 155,000
Transaction 2: Receipt of Cash on Account
Description: Receives $28,000 in cash from customers who had been billed for services.
Journal Entry: Dr. Cr.
Cash 28,000
Accounts Receivable 28,000
Transaction 3: Cost Flow Assumption: LIFO
Description: Recorded $45,000 in cost of goods sold under the LIFO cost flow assumption.
Journal Entry: Dr. Cr.
Cost of Goods Sold 45,000
Inventory 45,000
Transaction 4: Recording Depreciation Expense
Description: Recorded depreciation expense under the straight-line method.
Journal Entry: Dr. Cr.
Depreciation Expense 9,000
Accumulated Depreciation 9,000
Transaction 5: Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was equal to the book value.
Journal Entry: Dr. Cr.
Cash 3,000
Accumulated Depreciation 16,000
Equipment 19,000
Transaction 6: Gain on Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was $2,000 more than the book value resulting in a gain.
Journal Entry: Dr. Cr.
Cash 5,000
Accumulated Depreciation 16,000
Gain 2,000
Equipment 19,000
Transaction 7: Loss on Sale of Plant Asset
Description: Sale of plant asset for cash. The cash received was $500 less than the book value resulting in a loss.
Journal Entry: Dr. Cr.
Cash 2,500
Loss 500
Accumulated Depreciation 13,000
Equipment 16,000
Transaction 8: Note Given to Borrow from Bank
Description: Borrowed $2,000 cash with a 60-day, 12%, $2,000 note.
Journal Entry: Dr. Cr.
Cash 2,000
Notes Payable 2,000
Transaction 9: Payment of Note
Description: Paid the principal and interest on the note in Transaction 8.
Journal Entry: Dr. Cr.
Notes Payable 2,000
Interest Expense 40
Cash 2,040
Transaction 10: Bond Issue
Description: Issued a $100,000 Par Value Bond at a Discount
Journal Entry: Dr. Cr.
Cash 96,454
Bonds Payable 96,454
Transaction 11: Effective Interest Amortization
Description: Recorded bond interest expense under the effective interest method.
Journal Entry: Dr. Cr.
Bond Interest Expense 4,823
Bonds Payable 823
Cash 4,000
Transaction 12: Issuing Par Value Stock at a Premium
Description: Issued common stock and received cash of $50,000 in excess of par value.
Journal Entry: Dr. Cr.
Cash 350,000
Common Stock , $10 Par Value 300,000
Paid-in Capital in Excess of Par Value, Common Stock 50,000
Transaction 13: Dividend
Description: The corporation pays a dividend of $3,800 in cash to the stockholders of Softbyte.
Journal Entry: Dr. Cr.
Dividends 3,800
Cash 3,800
Explanation / Answer
Bond Price =r*pvifa6, 5% + fv*pvf6,5%
R=3000000*12%/2=180000
Pvifa =((1-(1+r)^-n))/r
Pvf=1/(1+r)^n
Bond Price =(180000*((1-(1.05^-6))/0.05)))+(3000000*(1/(1.05^6)))=3152270.76
So for first answer is option A
Amount of bond premium = bonds price - face value =3152270.76-3000000=152270.76
So for second answer is option C
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