Question

1. Datos: On January 1, 2019, Firm X issued 7% bonds, face value $5,000,000 due at the end of 5 years with interest paid annually. Part 1: Assume yield rate is 8% Yield Rate 8% Present value of 1 at 8% .68058 Present value of annuity (5 years 8%) 3.99271 1. How much was the bond sold? 2. Amount of Premium or Discount? 3. Present the calculation of how I arrive at these quantities of question 1 and 2: 4. Submit Jornal's entry for the company that issues the bond and for the investor who buys the bond, at the date of issuance. 5. Prepare the amortization table (in Excel) using the effective interest method: - (1) (2) (3) (4) (5) Interest Discount Carrying Interest Expense Interest Amort. Value EOY Rate Year (4) x 8% Paid (1) - (2) (4) + (3) (1) + (4) 6. Prepare the journal entries for the amortization of the bond for each of the 5 years:

Answer 1

			Given information in the question	Date of issue of bond	January 1, 2019
				Coupon rate	7%
				Coupon Amount	350,000
				Face value of bond	5,000,000
				Life of the bond	5 Years
				Yield rate	8%
	Question No 1	How much was the bond sold?
	Answer	The bond was sold $ 4,800,364
	Question No 2	Amount of premium or discount?
	Answer	The Amount of discount on issue of bond is $ 199,636
	Question No 3	Present the calculation of how I arrive at these quantities of question 1 and 2
	Answer	Refer below
			Calculation of Present value of Bond
	Cell Reference no	Year	Cash flow nature	Cash flow	Present value factor @ 8%	Present value of cash flow
		A	B	C	D=1/(1+8%)^A	E=B*D
		1	350,000	Coupon Amount	0.92593	324,074
		2	350,000	Coupon Amount	0.85734	300,069
		3	350,000	Coupon Amount	0.79383	277,841
		4	350,000	Coupon Amount	0.73503	257,260
		5	350,000	Coupon Amount	0.68058	238,204
		5	5,000,000	Principle repayment	0.68058	3,402,916
	A	Present value of Bond				4,800,364
	B	Face value of bond				5,000,000
	C=B-A	Discount of issue of bond				199,636
	Question No 4
	Answer
	Journal entry in the books of company issuing the bond
	Date	Dr/Cr	Particulars	Debit $	Credit $
	January 1, 2019	Debit	Cash/Bank	4,800,364
		Debit	Discount on issue of bonds	199,636
		Credit	Bond payable		4,800,364
			(To record the issue of bond at discount)
	Journal entry in the books of investor
	Date	Dr/Cr	Particulars	Debit $	Credit $
	January 1, 2019	Debit	Investment	4,800,364
		Credit	Cash/Bank		4,800,364
			(To record the investment in bonds at Yield rate of 8%)