Hadley Ltd. is authorized to issue $3,000,000 of 4%,10-year bonds payable. On De
ID: 2562015 • Letter: H
Question
Hadley Ltd. is authorized to issue $3,000,000 of 4%,10-year bonds payable. On December 31, 2016, when the market interest rate is 6%,the company issues $2,400,000 of the bonds.Hadley Ltd. amortizes bond discount by the effective-interest method. The semiannual interest dates are June 30 and December 31.
1. Use the PV function in Excel Superscript to calculate the issue price of the bonds.
2. Prepare a bond amortization table for the first four semiannual interest periods.
3. Record the issuance of bonds payable on December 31, 2016; the payment of interest on December 31, 2016; and the payment of interest on June 30, 2017.
Explanation / Answer
Price of the bond = c × F × (1 (1 + r)-t)/r+F(1 + r)t C=Interest Rate F= Face Value r=Market Interest Rate Price of Bond= Present value of Interest payments+Present value of the bond Price of Bond 60000*(1-(1.03)^-20)/.03)+3000000/(1.03)^20 (60000*(1-.55368)/.03)+3000000*.55368 2553680 Face vale 3000000 Discount 446320 Interest payment=3000000*2% 60000 Date Interest Payment @2% Interest expenses at 3%*G Amortization of Bond Carrying value of Bond Credit cash Debit Interest Expense Bond discount 31-Dec-16 2553680 June 30,2017 60000 76610 16610 2570290 Dec,31 2017 60000 77109 17109 2587399 June 30,2018 60000 77622 17622 2605021 Dec,31 2018 60000 78151 18151 2623172 ans 3 Date Accounts Payable Dr Cr 31-Dec Cash 2553680 Discount on bond payable 446320 Bonds Payable 3000000 June 30,2017 Interest Expense 76610 Cash 60000 Discount on bond payable 16610 Dec 31 2017 Interest Expense 77109 Cash 60000 Discount on bond payable 17109 If any doubt please comment. I have taken discount factor upto 5 factor.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.