b. Recora the jounal ently al mainty f the bod. ghleenteest paytpion ABC Company
ID: 2596486 • Letter: B
Question
b. Recora the jounal ently al mainty f the bod. ghleenteest paytpion ABC Company issues X% 10-year bonds with a face value of $100,000, and the bonds pay interest once a year on Dec 31 3. The market interest rate at the date of issue is 12% and the bonds sell for $88702. Record the journal entry at the issue date (2 points) a. Compute the amount of each interest payments that ABC pays every Dec 31. Descriptively show your workings and round your answers to zero decimal points. (4 points) Compute the coupon rate of the bonds. Descriptively show your workings and round your answers to zero decimal points. (2 points) c. d. Record the journal entry at maturity of the bord. Ignore the interest payment entry (2 points)Explanation / Answer
Answer a.
Particulars
Debit
Credit
Cash
Discount on Bonds Payable
Bond Payable
$88,702
$11,298
$100,000
Answer b.
Face Value = $100,000
Current Price = $88,702
Annual Interest rate = 12%
Time to Maturity = 10 years
Let Annual Coupon be $X
$88,702 = $X * PVIFA(12%, 10) + $100,000 * PVIF(12%, 10)
$88,702 = $X * (1 - (1/1.12)^10) / 0.12 + $100,000 / 1.12^10
$88,702 = $X * 5.65022 + $32,197.32
$X * 5.65022 = $56,504.68
$X = $10,000
So, Annual interest payment is $10,000
Answer c.
Coupon Rate = Annual Interest Payment / Face Value
Coupon Rate = $10,000 / $100,000
Coupon Rate = 10%
Answer d.
Particulars
Debit
Credit
Bonds Payable
Cash
100,000
100,000
Particulars
Debit
Credit
Cash
Discount on Bonds Payable
Bond Payable
$88,702
$11,298
$100,000
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