mn 10. Recording Bond Transactions - Issuer (Estimated 10 points) On January 1,
ID: 2534675 • Letter: M
Question
mn 10. Recording Bond Transactions - Issuer (Estimated 10 points) On January 1, 2017, Mania Enterprises issued 10% bonds dated January 1, 2017, with a face amount of $25 million. The bonds mature in 2026 (10 years). For bonds of similar risk and maturity, the market yield is 12%Interest is paid semiannually on June 30 and December 31, You may round all amounts to the nearest S1 if necessary Mania Enterprises-Issuer: 1. Determine the price of the bonds at January 1, 2017. Show your calculation 2. Prepare the journal entry to record the bond issuance by Mania on January 1, 2017 3. Prepare the journal entry to record interest on June 30, 2017, using the effective interest method 4. Prepare the journal entry to record interest on December 31,2017, using the effective interest method. 5. Prepare the journal entry to record the maturity of the bonds in 2026 (assume that the final interest payment has already been recorded).Explanation / Answer
1)
semiannual interest = 25,000,000*.10*6/12 = 1250000
semiannual months =10*2 =20
semiannual yield = 12*6/12 = 6%
Price = [PVA 6%,20 *iNTerest ] +[PVF 6%,20*Face value]
= [11.46992*1250000]+ [.31180*25,000,000]
= 14337400+ 7795000
= 22132400
**carrying value after first semiannual payment = 22132400+77944= 22210344
Date Account Debit credit 1jan 2017 cash 22132400 Discount on bond payable 2867600 Bond payable 25000000 30 june 2017 Interest expense [22132400*.06] 1327944 Discount on bond payable 77944 cash 1250000 31 dec 2017 Interest expense [22210344*.06] 1332620.64 Discount on bond payable 82620.64 cash 1250000 31 dec 2026 Bond payable 25000000 cash 25000000Related Questions
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