Question

VIEW EXERCISES REVIEW EX January 1, Canglon, Inc., issues 10%, 5-year bonds with a face value of $150,000 when Torerest is to be paid semiannually. Prepare calculations to prove that the selling price of the refer to the information in RE14-1. Assume Canglon uses the effective interest me epare the journal entry to record the first interest payment. car bonds with a face value of $150.000 when the effective rate is 12%. ulations to prove that the selling price of the bonds is $138,959.90. Canglon uses the effective interest method to amortize the discount.

Answer 1

The selling price of the Bond

· The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

· The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

· Here, the calculation of the Bond Price using financial calculator is as follows

Variables	Financial Calculator Keys	Figures
Par Value/Face Value of the Bond [$150,000]	FV	150,000
Coupon Amount [$150,000 x 10.00% x ½]	PMT	7,500
Market Interest Rate or Yield to maturity on the Bond [12.00% x ½]	1/Y	6
Maturity Period/Time to Maturity [5 Years x 2]	N	10
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond will be $138,959.90.

“Hence, the Selling price of the Bond will be $138,959.90”

Journal entry to record the first interest payment

Accounts Tittles and explanations	Debit ($)	Credit ($)
Interest Expenses A/c [$150,000 x 10.00% x ½]	7,500.00
To Discount on Bond Payable A/c [$8,337.59 - $7,500]	837.59
To Cash A/c [$138,959.90 x 12.00% x ½]		8,337.59
[The Journal entry to record the first interest payment]