On January 1st 2017, the ACME Company issued (sold) $1,000,000 10% 12 year semi-
ID: 2559962 • Letter: O
Question
On January 1st 2017, the ACME Company issued (sold) $1,000,000 10% 12 year semi-annual bonds when the market rate of interest was 8%. These bonds pay interest semiannually on July 1 and January 1 part a: make the journal entry ACME makes when it sold the bonds part b: make the journal entry ACME makes when it makes the first interest payment on 7/1/17 part c: make the journal entry ACME makes on December 31, 2017 connected with these bonds part d: fill in the table value carry value of debt interest exp payment new carry value of debt 1/1/2017 7/1/2017 1/1/2018 7/1/2018 1/1/2019 part e:On 1/1/2019 ACME retired the bonds at 101. Make the necessary journal entry for the retirement of the bondsExplanation / Answer
value of bond
interest*PVAF at 4% for 24 semiannual period + face value*PVF at 4% at 24th semiannual period
50000*15.24696+1000000*.390121
1152469
Interest
50000
face value
1000000
PVAF at 4% for 24 semiannual period
1-(1+r)^-n / r
1-(1.04)^-24/.04
15.24696
PVF at 4% at 24th semiannual period
1/(1+r)^n
1/(1.04)^24
0.390121
date
explanation
debit
credit
1-Jan
cash
1152469
bonds payable
1000000
premium on bonds payable
152469
1-Jul
interest expense
46098.76
premium on bonds payable
3901.24
cash
50000
31-Dec
interest expense
45942.71
premium on bonds payable
4057.29
interest payable
50000
carry value of debt
interest expense
payment
premium amortized
carry value of premium in bonds
new carry value of debt
1/1/2017
152469
1152469
7/1/2017
1152469
46098.76
50000
3901.24
148567.76
1148567.76
1/1/2018
1148567.76
45942.71
50000
4057.2896
144510.4704
1144510.47
7/1/2018
1144510.47
45780.42
50000
4219.581184
140290.8892
1140290.89
1/1/2019
1140290.889
45611.64
50000
4388.364431
135902.5248
1135902.52
1/1/2019
bonds payable
1000000
premium on bonds payable
135902.5
cash
1010000
gain on disposal of bonds payable
125902.5
value of bond
interest*PVAF at 4% for 24 semiannual period + face value*PVF at 4% at 24th semiannual period
50000*15.24696+1000000*.390121
1152469
Interest
50000
face value
1000000
PVAF at 4% for 24 semiannual period
1-(1+r)^-n / r
1-(1.04)^-24/.04
15.24696
PVF at 4% at 24th semiannual period
1/(1+r)^n
1/(1.04)^24
0.390121
date
explanation
debit
credit
1-Jan
cash
1152469
bonds payable
1000000
premium on bonds payable
152469
1-Jul
interest expense
46098.76
premium on bonds payable
3901.24
cash
50000
31-Dec
interest expense
45942.71
premium on bonds payable
4057.29
interest payable
50000
carry value of debt
interest expense
payment
premium amortized
carry value of premium in bonds
new carry value of debt
1/1/2017
152469
1152469
7/1/2017
1152469
46098.76
50000
3901.24
148567.76
1148567.76
1/1/2018
1148567.76
45942.71
50000
4057.2896
144510.4704
1144510.47
7/1/2018
1144510.47
45780.42
50000
4219.581184
140290.8892
1140290.89
1/1/2019
1140290.889
45611.64
50000
4388.364431
135902.5248
1135902.52
1/1/2019
bonds payable
1000000
premium on bonds payable
135902.5
cash
1010000
gain on disposal of bonds payable
125902.5