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On janurary 1, 2017, Burch products issued $10,000,000 of 4%, 3 year bonds. Interst is payable...

On janurary 1, 2017, Burch products issued $10,000,000 of 4%, 3 year bonds. Interst is payable annually. The Market Yield for bonds of similar risk is 5%. burch uses the effective interst method to amoritze Bond premium of discount.

Required:

a) prepare a suitable amoritization table for the term of the bond.

b)prepare the journal entry to record the issuance of the bonds and all additional entries required through january 1, 2018

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Answer #1

Face Value = $10,000,000

Annual Coupon Rate = 4%
Annual Coupon = 4% * $10,000,000
Annual Coupon = $400,000

Annual Interest Rate = 5%
Time to Maturity = 3 years

Issue Value of Bonds = $400,000 * PVIFA(5%, 3) + $10,000,000 * PVIF(5%, 3)
Issue Value of Bonds = $400,000 * (1 - (1/1.05)^3) / 0.05 + $10,000,000 / 1.05^3
Issue Value of Bonds = $9,727,675

Answer a.

Answer b.

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