Question

Issue $500,000 of bonds. The bonds issue would be developed with a stated rate of 6%...

Issue $500,000 of bonds. The bonds issue would be developed with a stated rate of 6% and would be a 10 years bong with interest paid semi-annually on June 30 and December 31.

The current market rate for a similar bond is 4%.

John would like the journal entry for the bond issue and journal entry for first two interest payments. the company  would use the effective interest rate to amortize any bond discount or premium.

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Homework Answers

Answer #1

Face Value of Bonds = $500,000

Annual Coupon Rate = 6.00%
Semiannual Coupon Rate = 3.00%
Semiannual Coupon = 3.00% * $500,000
Semiannual Coupon = $15,000

Time to Maturity = 10 years
Semiannual Period = 20

Annual Interest Rate = 4.00%
Semiannual Interest Rate = 2.00%

Issue Value of Bonds = $15,000 * PVIFA(2.00%, 20) + $500,000 * PVIF(2.00%, 20)
Issue Value of Bonds = $15,000 * (1 - (1/1.02)^20) / 0.02 + $500,000 / 1.02^20
Issue Value of Bonds = $581,757

Amortization table:

Journal entries:

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