Question

# The Bradford Company issued 12% bonds, dated January 1, with a face amount of \$96 million...

The Bradford Company issued 12% bonds, dated January 1, with a face amount of \$96 million on January 1, 2021. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 14%. Interest is paid semiannually on June 30 and December 31. (FV of \$1, PV of \$1, FVA of \$1, PVA of \$1, FVAD of \$1 and PVAD of \$1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2021. 2. to 4. Prepare the journal entries to record their issuance by The Bradford Company on January 1, 2021, interest on June 30, 2021 and interest on December 31, 2021 (at the effective rate).

1. Price of the bonds = Present value of interest at 7%, 20 years + Present value of maturity amount

= 96000000*12%*6/12*10.594 + 96000000*0.2584

= \$85827840

2.

 Date Accounts Debit Credit January 1, 2021 Cash 85827840 Discount on Bonds Payable 10172160 Bonds Payable 96000000 June 30, 2021 Interest Expense (85827840*14%*6/12) 6007949 Discount on Bonds Payable 247949 Cash (96000000*12%*6/12) 5760000 December 31, 2021 Interest Expense (85827840*14%*6/12) 6007949 Discount on Bonds Payable 247949 Cash (96000000*12%*6/12) 5760000

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