Standard Pacific Shipping issued $5,000,000, face amount, of 5% bonds on January

Question

Standard Pacific Shipping issued $5,000,000, face amount, of 5% bonds on January 1, 20X3. The bonds are 5-year bonds, and Interest is payable every 6 months. At the time of issue, the market rate of interest was 6%, so the bonds were issued at a discount

a. Prepare calculations showing that issue price was approximately $4,786,725.

b. Use the effective-interest method of amortization, and prepare the journal entries that Standard Pacific Shipping would record on January 1, 20X3, June 30, 20X3, and December 31, 20X3.

c. Show how the bonds would appear on Standard Pacific Shipping's December 31, 20X3 balance sheet.

Explanation / Answer

Answer:a In case of Semiannually rate is half and time is Double.

Bond Price=($5,000,000*5%*1/2)*PVIFA(3%,10)+$5000000*PVIF(3%,10)

=125000*8.5302+5000000*0.74409

=1066275+3720450

=4786725

Answer:b

1 jan 2003

Cash A/C Dr. $4786725

Discount on Bonds Payable A/C Dr. $213275

To Bonds Payable A/C $5000000

30 june 2003

Bond interest expense A/C Dr. $143602

To discount on bonds payable a/C $18602

To cash A/C $125000

31 dec 2003

Bond interest expense A/C Dr. $144160

To discount on bonds payable a/C $19160

To cash A/C $125000

Answer:c

Balance sheet

Bonds Payable $5000000

Less: Discount on bonds payable 213275 $4,786,725.

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