Park Corporation is planning to issue bonds with a face value of $3,400,000 and
ID: 2531772 • Letter: P
Question
Park Corporation is planning to issue bonds with a face value of $3,400,000 and a coupon rate of 7 percent. The bonds mature in 10 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 also uses a premium account. Assume an annual market rate of interest of 6.0 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
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. Round your final answer to whole dollars.)
3. How will Park present its bonds on its June 30 balance sheet? (Round your final answer to whole dollars.)
Explanation / Answer
Solution 1:
Face value of bond = $3,400,000
Coupon rate = 7%, 3.50% semiannual
Market rate of interest = 6%, 3% semiannual
Maturity period = 10 years, 20 semiannual period
Issue price of bond = Present value of interest and principal discounted at market rate of interest
= ($3,400,000 * 3.50%)*Cumulative PV factor at 3% for 20 periods + $3,400,000 * PV factor at 3% for 20th period
= $119,000 * 14.87747 + $3,400,000 * 0.553676
= $3,652,917
Solution 2:
Solution 3:
Journal Entries - Park Corporation Date Particulars Debit Credit 1-Jan Cash Dr $3,652,917.00 To Bond Payable $3,400,000.00 To Premium on issue of bond $252,917.00 (Being bond issued at premium)