Please help with this question Analyzing and Reporting Financial Statement Effec
ID: 2451793 • Letter: P
Question
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Analyzing and Reporting Financial Statement Effects of Bond Transactions (LO2) On January 1, 2014, Shields, Inc., issued $900,000 of 9%, 20-year bonds for $989,067, yielding a market (yield) rate of 8%. Semiannual interest is payable on June 30 and December 31 of each year. Show computations to confirm the bond issue price. Indicate (he financial statement effects using the template for (1) bond issuance, (2) semiannual interest payment and premium amortization on June 30, 2014, and (3) semiannual interest payment and premium amortization on December 31,2014.Explanation / Answer
a)
Bond Issue Price = semi annual interest rate*PVIFA(4%,40) + Face Value*PVIF(4%,40)
Bond Issue Price = 900000*9%*1/2*19.792774 + 900000*0.208289
Bond Issue Price = $ 989067
b) Using Effective Interest Amortisation Method
Asset = Liability Income Statement Cash = Bonds Payable + Bonds Premium Interest Expenses 1) Bond Issuance 989067 = 900000 + 89067 0 2) Semi Annual Interest, June 30 -40500 = 0 + -937 39563 3) Semi Annual Interest, Dec 31 -40500 = 0 + -975 39525