Question

Question 4 (Q 3)

Cansat, a Crown corporation owned by the government, issued bonds to finance the construction of the next generation of observation satellites. On January 1, 2020, Cansat issued 7%, 15-year bonds with a face value of $200 million. The bonds will pay interest semi-annually on June 30 and December 31.

Required

1. Calculate the amount of cash Cansat will receive if the bonds are sold under each of the following bond alternatives:

1. 7% (issued at par)

2. a price of 95.542 to yield 7.5%

3. a premium in the amount of $9,500,000 and first interest payment of $6,808,750

2. Prepare the journal entry Cansat would record at the time of the issuance of the bonds under each of the alternatives.

1. 7% (issued at par)

	Dr.	Cr.

2. a price of 95.542 to yield 7.5%

	Dr.	Cr.

3. a premium in the amount of $9,500,000 and first interest payment of $6,808,750

	Dr.	Cr.

Answer 1

(a) Calculation of amount of cash received :-

i) When the Bond is issued at Par then the Issue price is equal to the Face value.

So the Cash Received = $200,000,000

ii) Cash Received =2,000,000 x $95.542 =$191,084,000.

iii) Cash Received =$200,000,000 + $9,500,000 =$209,500,000.

(b) Journal Entries :-

i) Cash Dr. $200,000,000

Bond Payable $200,000,000

ii) Cash Dr. $191,084,000

Discount on Bond Payable Dr. $8,916,000

Bond Payable $200,000,000

iii) Cash Dr. $209,500,000

Bond Payable $200,000,000

Premium on Bonds Payable $9,500,000