EX-9B On February 1, 2011, Giant Corp. issued an $800,000 5% two-year bond. Inte
ID: 2566118 • Letter: E
Question
EX-9B On February 1, 2011, Giant Corp. issued an $800,000 5% two-year bond. Interest is payable quarterly each May 1, August 1, November 1, and February 1 Required Part 1 a. Calculate the bond issue price assuming a market interest rate of 6% on the date of issue. b. Using the effective interest method, prepare an amortization schedule. s. Record the entry for the issuance of the bond on February 1, the adjusting entry to accrue bond interest and related amortization on March 31, 2011, Giant Corp.'s year payment of interest on May 1, 2011.Explanation / Answer
Year to maturity =n=(2*4) 8 Years Coupon Rate=5%/4 1.25% Coupon Amount=(PMT)=($1000*7%) 10000 Fair value 800000 Yield to maturity= i=(6%/4) 1.50% Present Value in excel(=PV(I,n,PMT,FV)) PV(1.5%,8,10000,800000) Present Value ($785,028.15) Date Interest Expense Amortzation of discount Discount Carrying value 1/2/2011 800000 1/2/2011 $ 14,971.85 $ 785,028.15 1/5/2011 $ 13,742.96 $ 1,871.48 $ 13,100.37 $ 786,899.63 1/8/2011 $ 13,742.96 $ 1,871.48 $ 11,228.89 $ 788,771.11 1/11/2011 $ 13,742.96 $ 1,871.48 $ 9,357.41 $ 790,642.59 1/2/2012 $ 13,742.96 $ 1,871.48 $ 7,485.93 $ 792,514.1 1/5/2012 $ 13,742.96 $ 1,871.48 $ 5,614.45 $ 794,385.55 1/8/2012 $ 13,742.96 $ 1,871.48 $ 3,742.97 $ 796,257.03 1/11/2012 $ 13,742.96 $ 1,871.48 $ 1,871.49 $ 798,128.51 1/2/2013 $ 13,742.96 $ 1,871.48 $ - $ 800,000.0 Discount=(Carrying Value-Present Value)=($800000-$785028.15) Discount Amortzation=($14971.85/8) 2Years* 4 quartly Payment=8 Journal Entries Journal Entries Particular Amount (Dr) Amount (Cr) Cash A/C $ 785,028.15 To Discount on bonds payable $ 14,971.85 To Bonds Payable $ 800,000.00 Bonds Interest Expense $ 13,742.96 To Bonds Discount Payable $ 1,871.48 To Cash $ 11,871.48
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