Park Corporation is planning to issue bonds with a face value of $2,013,000 and
ID: 2531177 • Letter: P
Question
Park Corporation is planning to issue bonds with a face value of $2,013,000 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 $1, 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.)
2. Prepare the journal entry to record the interest payment on June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
3. What bonds payable amount will Park report on its June 30 balance sheet?
Ch. 10-Homework Prob x c Not secure ezto.mheducation.com/hm.tpx?-0.9739918295411252 1524691881724 ::: Apps ? Bookmarks D ? Blackboard M McGraw-Hill Connect Pearson OM D MACRO D Maple Just 11 Really Helpfu @GMU Account GMU Parking os Mason Mail Other bookmarks and Dacerter 1 to whole dollara Reqaired erbry require in the ournal entry worksheet of the basda ournal entry worksheet O Type here to search a 5:58 PM 4/25/2018
Explanation / Answer
Solution 1 and 2:
Face value of bond = $2,013,000
Coupon rate = 10% , 5% Semi annual
Market rate = 8.5% , 4.25% Semi annual
Maturity = 15 years , 30 half years
Issue price of bond = Present value of Interest Payment +Present value of Maturity payment
= PV of ($2,013,000*5%) at cumulative PV factor at 4.25% for 30 periods +PV of $2,013,000 at PV factor at 4.25% for 30th period
= $100,650* 16.77902 + $2,013,000*0.286892
= $ 2,266,321
Solution 3:
Journal Entries - Park corporation Date Particulars Debit Credit 1-Jan Cash Dr $2,266,321 To Bond Payable $2,266,321 (Being issued of bond recorded as no premium account is used by Park corporation) 30-Jun Interest Expense Dr $96,319 Bond Payable Dr. $4,331 To Cash $100,650 (Being interest paid on bond and premium amoritzed)