Bond Premium and Discount Markway Inc. is contemplating selling bonds. The issue
ID: 2474793 • Letter: B
Question
Bond Premium and Discount
Markway Inc. is contemplating selling bonds. The issue is to be composed of 750 bonds, each with a face amount of $1,000.
Required:
1. Calculate how much Markway is able to borrow if each bond is sold at a premium of $30.
$
2. Calculate how much Markway is able to borrow if each bond is sold at a discount of $10.
$
3. Calculate how much Markway is able to borrow if each bond is sold at 92% of par.
$
4. Calculate how much Markway is able to borrow if each bond is sold at 103% of par.
$
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Solution
5. Assume that the bonds are sold for $975 each. Prepare the entry to recognize the sale of the 750 bonds. If an amount box does not require an entry, leave it blank.
Journal
Account and Explanation
Debit
Credit
Bonds Payable
Cash
Interest Expense
Interest Payable
Premium on Bonds Payable
Correct 6 of Item 2
Correct 7 of Item 2
Correct 8 of Item 2
Bonds Payable
Discount on Bonds Payable
Interest Expense
Interest Payable
Premium on Bonds Payable
Correct 9 of Item 2
Correct 10 of Item 2
Correct 11 of Item 2
Bonds Payable
Cash
Discount on Bonds Payable
Interest Expense
Interest Payable
Premium on Bonds Payable
Correct 12 of Item 2
Correct 13 of Item 2
Correct 14 of Item 2
Record issuance of bonds at discount
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Solution
6. Assume that the bonds are sold for $1,015 each. Prepare the entry to recognize the sale of the 750 bonds. If an amount box does not require an entry, leave it blank.
Journal
Account and Explanation
Debit
Credit
Bonds Payable
Cash
Discount on Bonds Payable
Interest Expense
Premium on Bonds Payable
Correct 6 of Item 3
Correct 7 of Item 3
Correct 8 of Item 3
Cash
Discount on Bonds Payable
Interest Expense
Interest Payable
Premium on Bonds Payable
Correct 9 of Item 3
Correct 10 of Item 3
Correct 11 of Item 3
Bonds Payable
Cash
Discount on Bonds Payable
Interest Expense
Interest Payable
Correct 12 of Item 3
Correct 13 of Item 3
Correct 14 of Item 3
Record issuance of bonds at premium
Hide5. Assume that the bonds are sold for $975 each. Prepare the entry to recognize the sale of the 750 bonds. If an amount box does not require an entry, leave it blank.
Journal
Account and Explanation
Debit
Credit
Bonds Payable
Cash
Interest Expense
Interest Payable
Premium on Bonds Payable
Correct 6 of Item 2
Correct 7 of Item 2
Correct 8 of Item 2
Bonds Payable
Discount on Bonds Payable
Interest Expense
Interest Payable
Premium on Bonds Payable
Correct 9 of Item 2
Correct 10 of Item 2
Correct 11 of Item 2
Bonds Payable
Cash
Discount on Bonds Payable
Interest Expense
Interest Payable
Premium on Bonds Payable
Correct 12 of Item 2
Correct 13 of Item 2
Correct 14 of Item 2
Record issuance of bonds at discount
Explanation / Answer
1)
Calculate the amount borrowed if each bond is sold at a premium of $30.
Amount borrowed = Number of bonds * (Face value of the bond + Premium of the bond)
Amount Borrowed = 750 * ($1000+$30) = 750*$1030 = $772,500.
Therefore, the amount that M is able to borrow is $772,500.
2)
Calculate the amount borrowed if each bond is sold at a discount of $10.
Amount borrowed = Number of bonds * (Face value of the bond - Discount of the bond)
Amount Borrowed = 750 * ($1000-$10) = 750*$990 = $742,500.
Therefore, the amount that M is able to borrow is $742,500.
3)
Calculate the amount borrowed if each bond is sold at 92% of par.
Amount borrowed = Number of bonds * (Face value of the bond * 92%)
Amount Borrowed = 750 * (1000*92%) = 750 * $920 = $690,000.
Therefore, the amount that M is able to borrow is $690,000.
4)
Calculate the amount borrowed if each bond is sold at 103% of par.
Amount borrowed = Number of bonds * (Face value of the bond * 103%)
Amount Borrowed = 750 * (1000 * 103%) = 750 * $1030 = $772,500.
Therefore, the amount that M is able to borrow is $772,500.
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