Park Corporation is planning to issue bonds with a face value of $2,001,000 and
ID: 2405739 • Letter: P
Question
Park Corporation is planning to issue bonds with a face value of $2,001,000 and a coupon rate of 10 percent. The bonds mature in 15 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and does not use a premium account. Assume an annual market rate of interest of 8.5 percent. (FV of S1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required 1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the issuances of the bonds. Note: Enter debits before credits. Date General Journal Debit Credit January 01 Record entry Clear entry View general journalExplanation / Answer
PRICE of Bond = Present value of sum of interest payment in future + PV of redemptioon amount Case A (semiannual) n = = 15 years*2 = 30 periods req. rate of return (i)= 8.5%/2 = 4.25% interest = $2,001,000*4.5% = $100050 Present value of sum of interest payment = Interest * (Sum of PV of rate of intt * n years) = $100,050*SUM OF pvf Of 4.25% for 30 periods = $100,050*16.779 $ 1,678,738.95 PV of redemtion amt = Redemption amount * PV of 4.25% of 30th period = $2,001,000*0.2869 $ 574,086.90 PV of Bond = $1,678,739+574,086 $ 2,252,825.85 JE Cash A/c Dr $ 2,252,825.85 Premium on bonds payable $ 251,825.85 To Bond $ 2,001,000.00 (Being Bonds issued) 2 record the interest payment on June 30, using effective amortisation Interest Expense A/c Dr $ 95,745.10 [$2,252,826*4.25%] Premium on bonds payable $ 4,304.90 To Cash $ 100,050.00 [2,001,000*5%] 3 Bond Payable will be reported at the value of $2157080 [$2252825.85-95745.10]