On January 1, 2016, Mania Enterprises issued 12% bonds dated January 1, 2016, wi
ID: 2593506 • Letter: O
Question
On January 1, 2016, Mania Enterprises issued 12% bonds dated January 1, 2016, with a face amount of $20.8 million. The bonds mature in 2025 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Enter your answers in whole dollars.)
Determine the price of the bonds at January 1, 2016.
Prepare the journal entry to record the bond issuance by Mania on January 1, 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the journal entry to record interest on June 30, 2016, using the effective interest method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the journal entry to record interest on December 31, 2016, using the effective interest method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Required:
Explanation / Answer
Requirement 1: Price of bond: Period Cash Flow PVF (5%) PV of CF 1 1248000 0.952380952 1188571.429 2 1248000 0.907029478 1131972.789 3 1248000 0.863837599 1078069.323 4 1248000 0.822702475 1026732.689 5 1248000 0.783526166 977840.6558 6 1248000 0.746215397 931276.815 7 1248000 0.71068133 886930.3 8 1248000 0.676839362 844695.5238 9 1248000 0.644608916 804471.9274 10 1248000 0.613913254 766163.7404 11 1248000 0.584679289 729679.7528 12 1248000 0.556837418 694933.0979 13 1248000 0.530321351 661841.0456 14 1248000 0.505067953 630324.8053 15 1248000 0.481017098 600309.3384 16 1248000 0.458111522 571723.1794 17 1248000 0.436296688 544498.2661 18 1248000 0.415520655 518569.7773 19 1248000 0.395733957 493875.9784 20 1248000 0.376889483 470358.0746 20 20800000 0.376889483 7839301.244 23392139.75 Price of Bond $23,392,140 Requirement 2: Journal Entry to record the bond issuance: Cash a/c Dr 23392140 To Bond Payable 20800000 To Premium on Bond Payable 2592140 [Being bond issued at premium] Amortization Schedule: Period Beginning Carrying Value Interest Expense Interest Payable Amortised Premium Unamortised Premium Ending Carrying Value 0 2592140 23392140 1 23392140 1169607 1248000 78393 2513747 23313747 2 23313747 1165687.35 1248000 82312.65 2431434.35 23231434 3 23231434.35 1161571.718 1248000 86428.2825 2345006.068 23145006 4 23145006.07 1157250.303 1248000 90749.69662 2254256.371 23054256 5 23054256.37 1152712.819 1248000 95287.18146 2158969.189 22958969 6 22958969.19 1147948.459 1248000 100051.5405 2058917.649 22858918 7 22858917.65 1142945.882 1248000 105054.1176 1953863.531 22753864 8 22753863.53 1137693.177 1248000 110306.8234 1843556.708 22643557 9 22643556.71 1132177.835 1248000 115822.1646 1727734.543 22527735 10 22527734.54 1126386.727 1248000 121613.2728 1606121.27 22406121 11 22406121.27 1120306.064 1248000 127693.9365 1478427.334 22278427 12 22278427.33 1113921.367 1248000 134078.6333 1344348.701 22144349 13 22144348.7 1107217.435 1248000 140782.565 1203566.136 22003566 14 22003566.14 1100178.307 1248000 147821.6932 1055744.443 21855744 15 21855744.44 1092787.222 1248000 155212.7779 900531.6646 21700532 16 21700531.66 1085026.583 1248000 162973.4168 737558.2479 21537558 17 21537558.25 1076877.912 1248000 171122.0876 566436.1603 21366436 18 21366436.16 1068321.808 1248000 179678.192 386757.9683 21186758 19 21186757.97 1059337.898 1248000 188662.1016 198095.8667 20998096 20 20998095.87 1049904.793 1248000 198095.2067 0.660012276 20800001 Requirement 3: Journal Entry to record Interest on June 30 2016: Interest Expense a/c Dr 1169607 Premium on bond payable a/c Dr 78393 To Interest Payable a/c 1248000 [Being Interest expense recorded] Interest Payable a/c Dr 1248000 To Cash a/c 1248000 [Being Interest paid] Requirement 4: Journal Entry to record Interest on December 31 2016: Interest Expense a/c Dr 1107217.435 Premium on bond payable a/c Dr 140782.565 To Interest Payable a/c 1248000 [Being Interest expense recorded] Interest Payable a/c Dr 1248000 To Cash a/c 1248000 [Being Interest paid]