Question

When Patey Pontoons issued 10% bonds on January 1, 2021, with a face amount of $640,000, 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 S1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of S1) (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. Reg 1 Req2 Req3 Reg 4 Req 5 and 6 Req 7 ----

Answer 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	*	$6,40,000	=	$4,17,023
Interest (Annuity) [$640,000*10%*6/12]	6.334566	*	$32000	=	$2,02,706
Price of Bonds		619729

Solution 2

Patey Pontoons
Journal Entries
Date	Particulars	Debit	Credit
01-Jan-21	Cash A/c Dr	619729
	Discount on Bond Payable	20271
	To bonds payable		640000
	(Being bond issued at Discount)

Solution 3

Solution 3:
Bond Amortization Schedule
Date	Cash interest	Interest Expense	Discount amortization	Carrying value
01-Jan-21				$6,19,730
30-Jun-21	$32,000	$34,085	$2,085	$6,21,815
31-Dec-21	$32,000	$34,200	$2,200	$6,24,014
30-Jun-22	$32,000	$34,321	$2,321	$6,26,335
31-Dec-22	$32,000	$34,448	$2,448	$6,28,784
30-Jun-23	$32,000	$34,583	$2,583	$6,31,367
31-Dec-23	$32,000	$34,725	$2,725	$6,34,092
30-Jun-24	$32,000	$34,875	$2,875	$6,36,967
31-Dec-24	$32,000	$35,033	$3,033	$6,40,000

4.

Journal Entries
Date	Particulars	Debit	Credit
30-Jun-21	Interest Expense Dr	34085
	To Discount on bond payable	2085
	To Cash		32000
	(To record Interest on June 30, 2021)

5.

Bond reported in Balance Sheet Dec 31, 2021 = $6,24,013

See in Amortiztion table

6.

Interest Expense reported in Income statement = $34085 + $34200 = $68285

7.

Journal Entries
Date	Particulars	Debit	Credit
31-12-2024	Interest Expense Dr	$35,033
	To Discount on bond payable	$3,033
	To Cash		$32,000
31-12-2024	Bond Payable Dr	$6,40,000
	To Cash		$6,40,000