On March 1, 20X0, a company purchased $200,000 par value, 8% bonds, when the mar
ID: 2559538 • Letter: O
Question
On March 1, 20X0, a company purchased $200,000 par value, 8% bonds, when the market rate of interest for similar bonds was 10%. The bonds mature on March 20Y0 (ten years from now), and pay interest semiannually on September 1 and March 1, with the first payment due September 20X0. The company classifies the bonds as held to maturity securities. The company's fiscal year ends on December 31 . REQUIRED: ) Calculate the price of the bonds on January 1, 20X0. Round your answer to the nearest whole dollar Prepare all journal entries, in proper general journal form, that are necessary for the year 20X0 for this bond investment. Round all calculations to the nearest whole dollar. (2)Explanation / Answer
Ans. 1 Calculation of price of bond
Semiannual interest rate 8X.50 = 4%
Semi annual Interest (200000X4%) = $8000
Market rate half yearly = 5%
Total period of interest 20
Calculation of price of bond = $8000Xcumulative PV @5% for 20yrs + $200000XPV at 5% end of 20yrs
= $8000X12.4622+200000X.379 = 99698+75800 = $175498
Bond issued on discount (200000-175498) = $24502
2. Journal Entry
1. At the time of issuing bond
Bank/Cash A/c Dr. $175498
Discount on issued on Bond A/c $24502
To 8% Bond A/c $200000
(Being issued 8% bond on discount)
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