Question

When Patey Pontoons issued 10% bonds on January 1, 2021, with a face amount of $560,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2024 (4 years). 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.) Required: 1. Determine the price of the bonds at January 1, 2021. 2. Prepare the journal entry to record their issuance by Patey on January 1, 2021. 3. Prepare an amortization schedule that determines interest at the effective rate each period. 4. Prepare the journal entry to record interest on June 30, 2021. 5. What is the amount related to the bonds that Patey will report in its balance sheet at December 31, 2021? 6. What is the amount related to the bonds that Patey will report in its income statement for the year ended December 31, 2021? (Ignore income taxes.) 7. Prepare the appropriate journal entries at maturity on December 31, 2024. Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Reg 3 Req 4 Req 4 Req 5 and 6 Reg 7 Determine the price of the bonds at January 1, 2021. (Round final answers to the nearest whole dollar.) Table values are based on: Amount Present Value Cash Flow Interest Principal Price of bonds < Reg 1 Reg 2 >

Answer 1

Solution 1:

Chart Values are based on:
n= (4 Years*2)	8	Half years
i= (11%/2)	5.50%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.651599	*	$5,60,000	=	$3,64,895
Interest (Annuity) [$560,000*10%*6/12]	6.334566	*	$28,000	=	$1,77,368
Price of Bonds					$5,42,263

Solution 2:

Patey Pontoons
Journal Entries
Date	Particulars	Debit	Credit
01-Jan-21	Cash A/c Dr	$5,42,263
	Discount on Bond Payable	$17,737
	To bonds payable		$5,60,000
	(Being bond issued at Discount)

Solution 3:

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Discount amortization	Carrying value
01-Jan-21				$5,42,263
30-Jun-21	$28,000	$29,824	$1,824	$5,44,088
31-Dec-21	$28,000	$29,925	$1,925	$5,46,013
30-Jun-22	$28,000	$30,031	$2,031	$5,48,043
31-Dec-22	$28,000	$30,142	$2,142	$5,50,186
30-Jun-23	$28,000	$30,260	$2,260	$5,52,446
31-Dec-23	$28,000	$30,385	$2,385	$5,54,830
30-Jun-24	$28,000	$30,516	$2,516	$5,57,346
31-Dec-24	$28,000	$30,654	$2,654	$5,60,000

Solution 4:

Journal Entries
Date	Particulars	Debit	Credit
30-Jun-21	Interest Expense Dr	$29,824
	To Discount on bond payable		$1,824
	To Cash		$28,000
	(To record Interest on June 30, 2021)

Solution 5:

Bond reported in Balance Sheet Dec 31, 2021 = $546,013

Solution 6:

Interest Expense reported in Income statement = $29824 + $29925 = $59,749

Solution 7:

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-24	Interest Expense Dr	$30,654
	To Discount on bond payable		$2,654
	To Cash		$28,000
31-Dec-24	Bond Payable Dr	$5,60,000
	To Cash		$5,60,000