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On January 1, 2019, Braxton, Inc. issued $8,000,000 of 6%, 20 year bonds. The bonds pay...

On January 1, 2019, Braxton, Inc. issued $8,000,000 of 6%, 20 year bonds. The bonds pay interest semi-annually on June 30 and December 31. At the time the bonds were issued, the market rate was 5%. A. Calculate the cash received by Braxton, Inc. on January 1, 2019. B. Prepare the necessary journal entries on January 1, June 30 & December 31, 2019.

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Answer #1

Answer A.

Face Value of Bonds = $8,000,000

Annual Coupon Rate = 6.00%
Semiannual Coupon Rate = 3.00%
Semiannual Coupon = 3.00% * $8,000,000
Semiannual Coupon = $240,000

Time to Maturity = 20 years
Semiannual Period = 40

Annual Interest Rate = 5.00%
Semiannual Interest Rate = 2.50%

Issue Value of Bonds = $240,000 * PVA of $1 (2.50%, 40) + $8,000,000 * PV of $1 (2.50%, 40)
Issue Value of Bonds = $240,000 * 25.102775 + $8,000,000 * 0.372431
Issue Value of Bonds = $9,004,114

Answer B.

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