Question

When Patey Pontoons issued 6% bonds on January 1, 2021, with a face amount of $600,000, the market yield for bonds of similar risk and maturity was 7%. 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.

Answer 1

Answer 1. Issue Price of Bonds 579,377 Table Value Based on PV @ 3.5% period 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 Annuity 0.96618 0.93351 0.90194 0.87144 0.84197 0.81350 0.78599 0.75941 6.87396 8 (4 Year X 2) 3.50%(7.5% / 2) Present Value 18,000 $ (18000 X 6.87396) 600,000 ($ 600000 x 0.75941) Amount Cash Flow Interest - $ 6000,000 X 6% X 6/12 123,731 Principal 455646 Issue Price of Bonds Discount on issue of Bonds 579,377 20,623 (600000-579377) Answer 2 Date Debit credit january 1 2021 Account Title and Explanation Cash Discount on Issue of Bonds Bonds Payable (record the issue of bonds) 579,377 20,623 600,000

Answer 3 Bond Discount Amortization Schedule Date Interest Paid - $600,000 X 6% X 6/12 Interest Expense - Preceeding Bond Carrying Value X 7.5% 6/12 Discount Amortization Bonds Carrying Amount Unamortized Discount DED-C C = B-A E = $600,000-D jan 1 2021 june 30 2021 dec 31 2021 june 30 2022 dec 31 2022 june 30 2023 dec 31 2023 june 30 2024 dec 31 2024 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 $ $ $ $ $ $ 20,278 $ 20,358 $ 20,4405 20,526 $ 20,6145 20,706 $ 20,800 $ 20,899 $ 2,2785 2,358 2,440 2,526 $ 2,614 $ 2,706 $ 2,800 $ 2,900 $ 18,345 15,987 13,546 11,020 8,4065 5,700 $ 2,900 $ 0 $ 579,377 581,655 584,013 586,454 588,980 591,594 594,300 597,100 600,000 $ Answer 4 Date june 30 2021 Debit credit 20,278 Account Title and Explanation Interest Expense Discount on issue of Bonds Cash (Record the interest paid) 2,278 18,000 $ As per HomeworkLib policy experts need to answer only first 4 parts Please comment if you have any doubt Please give thumps up if you satisfied with the answer