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TABLE 1 Future Value of $1 FV = $1(1+i) 20.0% 1.20000 1.44000 ndi 1.0% 1 1.01000 2 1.02010 3 1.03030 4 1.04060 5 1.05101 1.5TABLE 2 Present Value of $1 $1 PV (1+1) wi 1.0% 1 0.99010 2 0.98030 3 0.97059 4 0.96098 5 0.95147 1.5% 0.98522 0.97066 0.956TABLE 3 Future Value of an Ordinary Annuity of $1 EVA_ (1 + i) - 1 ni 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%TABLE 4 Present Value of an ordinary Annuity of $1 1- (+1) PVA== ni 1 2 3 4 5 1.0% 1.5% 0.99010 0.98522 1.97040 1.95588 2.940TABLE 5 Future Value of an Annuity Due of $1 (1+i) -11 FVAD - = *(1+i) wi 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5,5%TABLE 6 Present Value of an Annuity Due of $1 PVAD= |x (1+i) ni 1 2 3 4 5 1.0% 1.00000 1.99010 2.97040 3.94099 4.90197 1.5% 1On February 1, 2021. Cromley Motor Products issued 8% bonds, dated February 1, with a face amount of $60 million. The bonds m

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Answer #1
1)
Cromley
Calculate cash proceeds on issuance:
Maturity value of bonds payable = FV $                                                            60,000,000.00
Market Interest Rate semiannual =Rate = 10%/2 5.00%
N = 4 years x 2 8
PMT = $90,000,000 x 8%/2 $                                                              2,400,000.00
Type 0
Present Value = PV(5%,8,-$2400000,-60000000,0) $                                                                 56,122,072
Bonds Payable $                                                            60,000,000.00
Less:Present Value of Bonds $                                                                 56,122,072
Discount on Bonds Payable $                                                                   3,877,928
Barnwell
Barnwell purchased 60,000 ÷ 60,000,000 = 0.1% of the bonds.
Present Value =84,183,109 x 0.1% $                                                                   56,122.07
2)
Cromley
Schedule of Bond Discount Amortization
Effective-Interest Method
8% Bonds Sold to Yield 10%
Date Cash Payment Effective Interest Expense = Carrying Amount x 5% Discount Amortized = Int. exp - Cash paid Carrying Amount of Bonds = Previous bal + Discount amortized
$             56,122,072
1 $                                                                   2,400,000 $                   2,806,104 $                   406,104 $             56,528,176
2 $                                                                   2,400,000 $                   2,826,409 $                   426,409 $             56,954,585
3 $                                                                   2,400,000 $                   2,847,729 $                   447,729 $             57,402,314
4 $                                                                   2,400,000 $                   2,870,116 $                   470,116 $             57,872,430
5 $                                                                   2,400,000 $                   2,893,621 $                   493,621 $             58,366,051
6 $                                                                   2,400,000 $                   2,918,303 $                   518,303 $             58,884,354
7 $                                                                   2,400,000 $                   2,944,218 $                   544,218 $             59,428,571
8 $                                                                   2,400,000 $                   2,971,429 $                   571,429 $             60,000,000
Total $                                                                 19,200,000 $                 23,077,928 $                3,877,928
Barnwell
Schedule of Bond Discount Amortization
Effective-Interest Method
8% Bonds Sold to Yield 10%
Date Cash Receipt Effective Interest Expense = Carrying Amount x 5% Discount Amortized = Int. exp - Cash paid Carrying Amount of Bonds = Previous bal + Discount amortized
$               56,122.07
1 $                                                                     2,400.00 $                     2,806.10 $                     406.10 $               56,528.18
2 $                                                                     2,400.00 $                     2,826.41 $                     426.41 $               56,954.58
3 $                                                                     2,400.00 $                     2,847.73 $                     447.73 $               57,402.31
4 $                                                                     2,400.00 $                     2,870.12 $                     470.12 $               57,872.43
5 $                                                                     2,400.00 $                     2,893.62 $                     493.62 $               58,366.05
6 $                                                                     2,400.00 $                     2,918.30 $                     518.30 $               58,884.35
7 $                                                                     2,400.00 $                     2,944.22 $                     544.22 $               59,428.57
8 $                                                                     2,400.00 $                     2,971.43 $                     571.43 $               60,000.00
Total $                                                                   19,200.00 $                   23,077.93 $                  3,877.93
3) Prepare the journal entries to record (a) the issuance of the bonds by Cromley and (b) Barnwell’s investment on February 1, 2018
Account Titles & Explanation Debit Credit
Cromley:
Cash $                                                            56,122,072.34
Discount on Bonds Payable $                                                              3,877,927.66
              Bonds Payable $                 60,000,000
Barnwell:
Investment in Bonds $                                                                        60,000
                Discount on bond investment $                          3,878
               Cash $                        56,122
4)
Part 4: Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020
Cromley
Date Account Titles  and Explanation Debit Credit
31-Jul-21 Interest  Expenses $              2,806,103.62
            Discount on Bonds Payable $              406,103.62
            Cash $           2,400,000.00
31-Dec-21 Interest  Expenses $              2,355,340.67
            Discount on Bonds Payable $              355,340.67
            Interest Payable $           2,000,000.00
Jan 31,2022 Interest  Expenses $                 471,068.13
Interest Payable $              2,000,000.00
            Discount on Bonds Payable $                71,068.13
            Cash $           2,400,000.00
31-Jul-22 Interest  Expenses $              2,847,729.24
            Discount on Bonds Payable $              447,729.24
            Cash $           2,400,000.00
31-Dec-22 Interest  Expenses $              2,391,763.08
            Discount on Bonds Payable $              391,763.08
            Interest Payable $           2,000,000.00
Jan 31,2023 Interest  Expenses $                 478,352.62
Interest Payable $              2,000,000.00
            Discount on Bonds Payable $                78,352.62
            Cash $           2,400,000.00
Barnwell
Date Account Titles  and Explanation Debit Credit
31-Jul-21 Cash $                     2,400.00
Discount  on Bond Investment $                        406.10
           Interest Revenue $                  2,806.10
31-Dec-21 Interest Receivable $                     2,000.00
Discount on Bond Investment $                        355.34
           Interest Revenue $                  2,355.34
Jan 31,2022 Cash $                     2,400.00
Discount  on Bond Investment $                          71.07
           Interest Revenue $                     471.07
           Interest Receivable $                  2,000.00
31-Jul-22 Cash $                     2,400.00
Discount  on Bond Investment $                        447.73
           Interest Revenue $                  2,847.73
31-Dec-22 Interest Receivable $                     2,000.00
Discount on Bond Investment $                        391.76
           Interest Revenue $                  2,391.76
Jan 31,2023 Cash $                     2,400.00
Discount  on Bond Investment $                          78.35
           Interest Revenue $                     478.35
           Interest Receivable $                  2,000.00
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