Respuesta :
Answer:
cash 879,172 debit
bonds payble 800,000 credit
premium on BP 79,127 credit
--to record issuance--
Interest expense 35,166.84 debit
premium on BP 833.16 debit
cash 36,000 credit
--to record first interest payment--
Interest expense 35133.52 debit
premium on BP 866.48 debit
cash 36,000 credit
--to record second interest payment--
Financial Statement effect:
Cash flow:
financing:
proceed from bonds 879,172
interest paid 72,000
Net income
interest expense 35,133.52 + 35,166.84 = 70.250,36
Balance sheet
Bonds payable 800,000
Premium on Bonds 77,471
Explanation:
The price will be the discounted future coupon and maturity payment at market rate
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 36,000.000 (800,000 x 9% x 1/2)
time 40 ( 20 years x 2)
rate 0.04 (8% x 1/2)
[tex]36000 \times \frac{1-(1+0.04)^{-40} }{0.04} = PV\\[/tex]
PV $712,539.8598
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 800,000.00
time 40.00
rate 0.04
[tex]\frac{800000}{(1 + 0.04)^{40} } = PV[/tex]
PV 166,631.24
PV c $712,539.8598
PV m $166,631.2357
Total $879,171.0955
The interest expense will be the carrying value times market rate
the cash outlay will be the same for each period:
principal x coupon rate x half-year as payment are semiannual.
800,000 x 0.09 x 1/2 = 36,000
The difference between each one will determinate the amortization onthe premium
a. The computations of bond issue price = PV of interest payments plus PV of $800,000 in 20 years
= $879,171 ($712,539.86 + $166,631.24) (see computations below)
b. Journal Entries:
January 1, 2016:
Debit Cash $879,172
Credit Bonds Payable $800,000
Credit Bonds Premium $79,172
- To record the issuance of the bonds at a premium.
June 30, 2016:
Debit Interest Expense $35,167
Debit Premium Amortization $833
Credit Cash $36,000
- To record the first interest payment and premium amortization.
December 31, 2016:
Debit Interest Expense $35,134
Debit Premium Amortization $866
Credit Cash $36,000
- To record the second interest payment and premium amortization.
c. T-accounts:
Cash Account
Date Accounts Title Debit Credit
Jan. 1, 2016, Bonds Payable $800,000
Jan. 1, 2016, Bonds Premium 79,721
June 30, Interest Expense $36,000
Dec. 31, Interest Expense 36,000
Bonds Payable
Date Accounts Title Debit Credit
Jan. 1, 2016, Cash $800,000
Bonds Premium
Date Accounts Title Debit Credit
Jan. 1, 2016, Cash $79,721
June, 30 Interest amortization $833
Dec. 31 Interest amortization 866
Interest Expense
Date Accounts Title Debit Credit
June 30, 2016, Cash $36,000
June 30, 2016, Bonds Premium $833
Dec. 31, 2016, Cash 36,000
Dec. 31, 2016, Bonds Premium 866
d. Financial Statement Template
Balance Sheet Income Statement Statement of
Assets = Liabilities + Equity Revenue - Expenses Cash Flows
1/1/2016 $879,172 = $800,000 +$79,172 $0 - $0 $879,172 FA
6/30/16 -$36,000 = $0 + (833) $0 - $35,167 ($36,000) OA
12/31/16 -$36,000 = $0 + (866) $0 - $35,134 ($36,000) OA
Data and Calculations:
Bonds Face value = $800,000
Bonds Proceeds = $879,172
Bonds Premium = $79,172 ($879,172 - $800,000)
Maturity period = 20 years
Coupon interest rate = 9%
Market interest rate = 8%
Interest payment = semiannually on June 30 and December 31
Issuance date = January 1, 2019
N (# of periods) = 40 (20 years x 2)
I/Y (Interest per year) = 8% (effective interest rate)
PMT (Periodic Payment) = $36,000 ($800,000 x 8% x 1.2)
FV (Future Value) 0
Results
PV = $712,539.86
N (# of periods) = 40
I/Y (Interest per year) = 8%
PMT (Periodic Paymen) = $0
FV (Future Value) = $800,000
Results
PV of $800,000 = $166,631.24
June 30, 2016:
Cash Payment = $36,000 ($800,000 x 9% x 1/2)
Interest Expense = $35,167 ($879,172 x 8% x 1/2)
Amortization of Premium = $833 ($36,000 - $35,167)
Carrying value = $878,339 ($879,172 - $833)
December 31, 2016:
Cash Payment = $36,000 ($800,000 x 9% x 1/2)
Interest Expense = $35,134 ($878,339 x 8% x 1/2)
Amortization of Premium = $866 ($36,000 - $35,134)
Carrying value = $877,473 ($878,339 - $866)
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