Question

On January 1, 2021, NFB Visual Aids issued $760,000 of its 20-year, 8% bonds. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. NFB Visual Aids records interest expense at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2021, the fair value of the bonds was $636,000 as determined by their market value in the over-the-counter market. General (risk-free) interest rates did not change during 2021. (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-a. Determine the price of the bonds at January 1, 2021. 1-b to 4. Prepare the necessary Journal entries. Complete this question by entering your answers in the tabs below. Reg 1A Req 18 to 4 Determine the price of the bonds at January 1, 2021. (Round final answer to the nearest whole dollars.) Price of the bonds

Answer 1

Please find attached Bond Amortization schedule for 20-year period: Selling price of Bond = $ 629,591

FV of note/bond Payable Interest Rate FV of interest Market Interest Rate (r) PV Factor for note/bond payable (1/(1+(r/m)^n*m PV Factor for interest (1-(1+(r/m))--(n*m))/(r/m) Number of years (n) Payment per annum (m) PV of note/bond payable (rounded off to 0 decimal places) PV of interest (rounded off to 0 decimal places) Total PV W/(/m) 760000 A 8% B 30400 C=A*B 10% D 0.1420 17.1591 F 2016 2 H 107,955.00 I=A*E 521,636.00 J=C*F 629,591.00 K=I+J Amortisation of Bond Premium or (Discount) Date Cash Payment Interest Expense L=outstanding balance * D/H MEC-L 1-Jan-21 30-Jun-21 31-Dec-21 30-Jun-22 31-Dec-22 30-Jun-23 31-Dec-23 30-Jun-24 31-Dec-24 30-Jun-25 31-Dec-25 30-Jun-26 31-Dec-26 30-Jun-27 31-Dec-27 30-Jun-28 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 31,480 31,534 31,590 31,650 31,712 31,778 31,847 31,919 31,995 32,075 32,159 32,247 32,339 32,436 32,538 (1,080) (1,134) (1,190) (1,250) (1,312) (1,378) (1,447) (1,519) (1,595) (1,675) (1,759) (1,847) (1,939) (2,036) (2,138) Outstanding Balance outstanding balance - M 629,591 630,671 631,805 632,995 634,245 635,557 636,935 638,382 639,901 641,496 643,171 644,930 646,777 648,716 650,752 652,890 655,135 657,492 659,967 662,565 665,293 668,158 671,166 674,324 677,640 31-Dec-28 30-Jun-29 31-Dec-29) 30-Jun-30 31-Dec-301 30-Jun-31 31-Dec-31 30-Jun-32 31-Dec-32 30-Jun-33 31-Dec-33 30-Jun-34 31-Dec-34 30-Jun-35 31-Dec-35 30-Jun-36 31-Dec-36 30-Jun-37 31-Dec-37 30-Jun-38 31-Dec-38 30-Jun-39 31-Dec-39 30-Jun-40 31-Dec-40 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 30,400 32,645 32,757 32,875 32,998 33,128 33,265 33,408 33,558 33,716 33,882 34,056 34,239 34,431 34,632 34,844 35,066 35,300 35,545 35,802 36,072 36,355 36,653 36,966 37,294 37,623 (2,245) (2,357) (2,475) (2,598) (2,728) (2,865) (3,008) (3,158) (3,316) (3,482) (3,656) (3,839) (4,031) (4,232) (4,444) (4,666) (4,900) (5,145) (5,402) (5,672) (5,955) (6,253) (6,566) (6,894) (7,223) 681,122 684,778 688,617 692,648 696,880 701,324 705,990 710,890 716,035 721,437 727,109 733,064 739,317 745,883 752,777 760,000 1,216,000 1,346,409 (130,409)

Journal entries as below:

Credit Journal Entries: Date Account Title 01-Jan-21 Dr. Cash Dr. Bond issued at discount Cr. Bond Payable (To record Bond issued at Discount) Debit $629,591 $ 130,409 $ 760,000 $ 31,480 30-Jun-21 Dr. Interest Expense Cr. Bond issued at discount Cr. Cash (To record first interest payment) $ $ 1,080 30,400 $ 31,534 31-Dec-21 Dr. Interest Expense Cr. Bond issued at discount Cr. Cash (To record second interest payment) $ $ 1,134 30,400 Fair Value Adjustment Book value of bond(o/s balance as of 31 Dec 2021) Fair value of bond Unrealized loss on fair value adjustment $ $ $ 631,805 636,000 (4,195) $ 31-Dec-21 Dr. Unrealized loss on Fair value adjustment Cr. Fair Value Adjustment (to record fair value adjustment) 4,195 | $ 4,195