Help with problem 10-8A Thank You Ike issue $180,000 of 11%, three-year bonds da
ID: 2778877 • Letter: H
Question
Help with problem 10-8A
Thank You
Ike issue $180,000 of 11%, three-year bonds dated January 1, 2013. that pay interest semiannually on June 30 and December 31 . They are issued at $184,566. Their market rate is 10% at the issue date. Required 1. Prepare the January 1, 2013. journal entry to record the bonds? issuance. 2. Determine the total bond interest expense to he recognized over the bonds? life. 3. Prepare an effective interest amortization table like Exhibit 10 B.2 ft)r the bonds? first two years. 4. Prepare the journal entries to record the first two interest payments. 5. Prepare the journal entry to record the bonds? retirement on January 1, 2015, at 98. Analysis Component 5. Assume that the market rate on January 1, 2013, is 12% instead of 10%. Without presenting numbers. describe how this change affects the amounts reported on Ike?s financial statements.Explanation / Answer
Answer:
Price of bonds = Present value of principal + Present value of interest payments
Here, Price of Bond = $ 184,566 and present value of Principal is $ 180,000
therefore, Present Value of interest payments = $ 184,566 - $ 180,000 = $ 4,566
$ 4,566 is the present value of interest payments semiannually for 3 years or 6 periods at market rate of 10%; therefore, we can calculate the actual interest payable on bonds as follow;
$ 180,000 x 11/2% x Present Value Annuity factor at 10/2% for 6 periods
= $ 180,000 x 5.5% x 5.07569 = $ 50,0249.35
Journal Entries
1. To record issue of Bonds;
Dr. Cash / Bank $ 184,566
Cr. 11% Bond $ 180,000
Cr. Premium on Bond Issue $ 4,566
(Being 11% bonds issued at premium of $ 4,566)
2.
Price of bonds = Present value of principal + Present value of interest payments
Here, Price of Bond = $ 184,566 and present value of Principal is $ 180,000
therefore, Present Value of interest payments = $ 184,566 - $ 180,000 = $ 4,566
$ 4,566 is the present value of interest payments semiannually for 3 years or 6 periods at market rate of 10%; therefore, we can calculate the actual interest payable on bonds as follow;
$ 180,000 x 11/2% x Present Value Annuity factor at 10/2% for 6 periods
= $ 180,000 x 5.5% x 5.07569 = $ 50,0249.35 ( total interest to be recorded over the bonds life)
3. Please provide with table of exibit 10B.2 to help you better.
4. Jounal Entries
June 30
Dr. Bond Interest Expense $ 9,900
Cr. Bond Interest Payable or Cash $ 9,900
December 31
Dr. Bond Interest Expense $ 9,900
Cr. Bond Interest Payable or Cash $ 9,900
5. Retirement of Bond
Dr. 11% Bond $ 180,000
Cr. Cash or Bank $ 180,000
6. If the market interest rate on January 1 is 12% instead of 10% then the bond shall be sold below its face value of $ 180,000 and theerfore, instead of premium on issue there would be discount on issue of Bond.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.