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On January 1, 2017, Banek Inc. issued $350,000 of 8%, 9 year bonds for $309,086, which...

On January 1, 2017, Banek Inc. issued $350,000 of 8%, 9 year bonds for $309,086, which implies a market (yield) rate of 10%. Semiannual interest payable on June 30 and December 31 of each year.

A. Show computations to confirm the bond issue price

B. Inidicate the financial statement effects using the template for 1) bond insurance 2) semiannual interest payment and discount authorization on June 30, 2017 and 3) semiannual interest payment and discount amortization on December 31, 2017.

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Answer #1

A. Thi diference is due to rounding off.

Face Value of the bond 350000
Rate of interest 8%
Semiannual interest 14000
Present value of $ received 0.4241
after 9 years @10%
Present value of $ annuity for 11.6896
18 periods @5%
(9 x 2 periods, 10%/2 rate
since the interest is semiannual)
Present value of the face value 148435
Present value of the interest 163654
Price of the boond 312089

B.

Assets = Liabilities + Equity
Cash + Non cash = Bond Payable + Paid Up Equity + Earned Equity
1. Issue of Bonds 309086 309086
2. Semi annual interest payment on June 30, 2017 -14000 2273 -142273
3. Semi annual interest payment on Dec.31, 2017 -14000 2273 -142273
*Discount on bond issue is amortized on straight line method. (40,914 / 18)
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