ezto.mheducation.com Chapter 14 HW ACG3141- Module 5 ACCOUNTING 01 Fall 2017 Cha

ID: 2576287 • Letter: E

Question

ezto.mheducation.com Chapter 14 HW ACG3141- Module 5 ACCOUNTING 01 Fall 2017 Chapter 14 HW Question 12 (of 21) 12 1,0 points The Bradford Company issued 12% bonds, dated January 1, with a face amount of $99 million on January 1, 2016. The bonds mature on December 31, 2025 (10 years). For bonds of similar risk and maturity, the market yield is 14%. Interest is paid semiannually on June 30 and December 31.( yol $1. P oS1. A ofS1. PVAoS1. EVAD($1 and PVADOS) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2016. (Enter your answers whole dollars.) Table value s are ba sed on: unt Present Value Cash Flow Interest Principal Price of bonds issuance by The Bradford Company on January 1, 2016, interest on June 30, 2016 and interest on December 31, 2016 (at the effective rate). (Enter answers in whole dollars. If no journal entry is required for a transaction, select "No journal entry required" in the first account field.) esc

Explanation / Answer

n =

10*2 = 20

i =

14%/2 = 7%

Cash flow

Amount

Present value

Interest

99 million*12%*1/2 = 5.94 million

5.94*PVAF(7%,20) = 5.94*10.594 = 62.93 million

Principal

99 million

99*PVIF (7%,20) = 99*0.2584 = 25.58 million

Price of Bonds

89 million

Journal Entry:

For issuance of Bond:

Cash DR 89

Discount DR 10 (99-89)

Bond payable CR 99

Interest on June 30, 2016

Interest Expense DR 6.23 (89*7% = 6.23)

Cash CR 5.94

Discount CR 0.29

Interest on December 31, 2016

Interest Expense DR 6.25 [(89+6.23 – 5.94)*7%] = 6.25