ACC 308 6-1 Homework Chapter 14
1. RE. 14-01
Bond Issue
On January 1, Canglon, Inc., issues 10%, 5-year bonds with a face value of $150,000
when the effective rate is 12%. Interest is to be paid semiannually.
Prepare calculations to prove that the selling price of the bonds is $138,959.90. Click here to access the tables to use with this exercise . Round your answers to two decimal places, if necessary. Present value of
principa
l:$83,759.2
5
Present value of
interest:55200.65
Selling price$138959.9
0
5-year bonds x 2 periods = 10 semiannual periods
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You should determine the selling price by using the effective rate to determine the present value of both the future principal and periodic interest payments. When interest is paid semiannually, you should divide the effective rate by the interest periods per year to determine the effective rate per semiannual period (for example, 12% ÷ 2 periods = 6% semiannual rate). You should also express the time to maturity in semiannual periods (for example, 5 year bonds × 2 periods = 10 semiannual periods. You should use the same number of interest periods for both principal and interest calculations.
Present value of principal = $ 150,000 (1+0.06)10
Present value of principal = $ 83,759.22
The semi-annual interest payment = (10% 2 ) x $ 150,000
The semi-annual interest payment = $ 7500
Present value of interest = $ 7500 (1+0.06)1 + $ 7500 (1+0.06)2 + $ 7500 (1+0.06)3 + $ 7500 (1+0.06)4 + $ 7500 (1+0.06)5 + $ 7500 (1+0.06)6 + $ 7500 (1+0.06)7 + $ 7500 (1+0.06)8 + $ 7500 (1+0.06)9 + $ 7500 (1+0.06)10
Present value of interest = $ 55,200.65
Selling price of bond = Present value of principal + Present value of interest
Selling price of bond = $ 83,759.22 + $ 55,200.65This study source was downloaded by 100000827065181 from CourseHero.com on 05-31-2021 16:35:53 GMT -05:00
https://www.coursehero.com/file/45257510/ACC-308-6-1-Homework-Chapter-14docx/This study resource was
shared via CourseHero.com Selling price of bond = $ 138,959.90
______________________________________________________________________________
Present value of principal = $ 275,000 (1+0.045)10
Present value of principal = $ 177,080.11
The semi-annual interest payment = (10% 2 ) x $ 275,000
The semi-annual interest payment = $ 13,750
Present value of interest = $ 13,750 (1+0.045)1 + $ 13,750 (1+0.045)2 + $ 13,750 (1+0.045)3 + $ 13,750 (1+0.045)4 + $ 13,750 (1+0.045)5 + $ 13,750 (1+0.045)6 + $ 13,750 (1+0.045)7 + $ 13,750 (1+0.045)8+ $ 13,750 (1+0.045)9 + $ 13,750 (1+0.045)10
Present value of interest = $108,799.87
Selling price of bond = Present value of principal + Present value of interest
Selling price of bond = $ 177,080.11 + $108,799.87
Selling price of bond = $ 285,880.07
2. RE. 14-06
On January 1 (the authorization date) of the current year, Temple Company issues $500,000 of 9% bonds at 103. These bonds pay interest on June 30 and December 31.
Required:
Prepare the journal entry to record the issuance of the bonds.
Prepare the journal entry to record the issuance of the bonds on January 1.
How does grading work?
PAGE 1
GENERAL JOURNAL
Score: 37/37
DATEACCOUNT TITLE POST. REF.DEBIT CREDIT
1Jan.01✔Cash✔ 515,000✔
2 Premium on Bonds Payable✔ 15,000✔
3 Bonds Payable✔ 500,000✔
Points: Feedback
Check My Work
A bond's price is often quoted as a percentage of the face value. For example, bonds with a face value of $100,000 that are quoted at 103 (meaning 103% of the face value) are selling for $103,000
—that is, at a premium of $3,000. If the bonds are issued with a contract interest rate that is greater than the effective interest rate the issuer will record a premium in a separate account titled Premium on Bonds Payable.
Cash = $500,000 x 103% = $515,000This study source was downloaded by 100000827065181 from CourseHero.com on 05-31-2021 16:35:53 GMT -05:00
https://www.coursehero.com/file/45257510/ACC-308-6-1-Homework-Chapter-14docx/This study resource was
shared via CourseHero.com
