Question

1. On March 1, 2015, Bowan Corporation issued 6% bonds dated February 1, 2015, the face amount of $700,000. The bonds were sold for the present value of the bonds on March1, 2015 plus one-month accrued interest. The bonds mature on January 31, 2018. Interest is paid semiannually on July 31 and January 31. Bowan's fiscal year ends on December 31 each year. The effective interest rate is 8%.

                       

            Required:

   a. Determine the present value the bonds on March 1, 2015 and the amount of accrued interest that was included in the proceeds received from the bond sale.                           Show calculations.

        b. Prepare the journal entry for the issuance of the bonds on March 1, 2015.

        c. Prepare the journal entry for the interest payment on July 31, 2015.

Answer 1

Clarification : On 31-07-2015, PV of 5 coupon payments is taken by using PVAF(Present Value Annuity Factor) and 6th coupon payment (of 31-07-2015) is separately added without discounting as it is itself PV on 31-07-2015. So Total 6 coupon payments have been considered in this way.

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