50.1K

Verified Solution

Link Copied!

Just show how [all] the computations were done, step-by-step, in detail, please.

On January 1, 2005, Apple issues $5,000,000 in bonds with a stated rate of 8%. The bonds mature in 5 years with interest (coupon) paid quarterly [Mar 31, Jun 30, Sep 30, and Dec 31]. The bonds were issued when the market rate was at 12%.

(a) Compute the issue price of the bonds.

Interest is 2% per quarter stated rate and 3% per quarter market rate.

PV of annuity 20 payments of $100,000 @3% per quarter 100,000*14.87747 = 1,487,747

PV of $5,000,000 after 20 periods @3% per period 5,000,000 * 0.55368 = 2,768,400

Issue Price 4,256,147

(b) Prepare the journal entry to record the issuance of the bonds. ABC uses a discount/premium account and the effective interest amortization method.

Debit Cash 4,256,747

Debit Discount on Bonds Payable 743,253

Credit Bonds Payable 5,000,000

(c). Calculate the information necessary to fill in the following table (round to the nearest $): (note the dates)

Date	Interest Payment	Interest Expense	Bonds Payable Net Book Value
1/1/2005	0	0	4,256,147
3/31/2005	100,000	127,684	4,283,831
6/30/2005	100,000	128,514	4,312,345
9/30/2005	100,000	129,370	4,341,715

(d) Prepare the journal entry to record interest expense on 9/30/2005.

Debit Interest Expense 129,370

Credit Cash 100,000

Credit Discount on Bonds payable 29,370

Answer & Explanation Solved by verified expert

See Answer