Question

On January 1, 2021, Instaform, Inc., issued 12% bonds with a face amount of $55 million, dated January 1. The bonds mature in 2040 (20 years). The market yield for bonds of similar risk and maturity is 14%. Interest is paid semiannually. (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. Prepare the journal entry to record their issuance by Instaform. 2-a. Assume the market rate was 11%. Determine the price of the bonds at January 1, 2021. 2-b. Assume the market rate was 11%. Prepare the journal entry to record their issuance by Instaform. 3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2A Req 2B Req 3 Determine the price of the bonds at January 1, 2021. (Enter your answer in whole dollars.) Price of the bonds < Reg 1A Req 1B >

Answer 1

Solution 1a:

Computation of bond price
Table values are based on:
n=	40
i=	7.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.06678	$55,000,000.00	$3,672,900
Interest (Annuity)	13.33171	$3,300,000.00	$43,994,643
Price of bonds			$47,667,543

Solution 1b:

Journal Entries - Instaform Inc.
Event	Particulars	Debit	Credit
1-Jan-21	Cash Dr	$47,667,543.00
	Discount on issue of bond Dr	$7,332,457.00
	To Bond Payable		$55,000,000.00
	(To record issue of bond at discount)

Solution 2a:

Computation of bond price
Table values are based on:
n=	40
i=	5.50%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.11746	$55,000,000.00	$6,460,300
Interest (Annuity)	16.04612	$3,300,000.00	$52,952,196
Price of bonds			$59,412,496

Solution 2b:

Journal Entries - Instaform Inc.
Date	Particulars	Debit	Credit
1-Jan-21	Cash Dr	$59,412,496.00
	To Bond Payable		$55,000,000.00
	To Premium on Bond Payable		$4,412,496.00
	(To record issue of bond at premium)

Solution 3:

Journal Entries - Broadcourt Electronics
Date	Particulars	Debit	Credit
1-Jan-21	Investment in Bond Dr	$55,000,000.00
	Premium on bond investment Dr	$4,412,496.00
	To Cash		$59,412,496.00
	(To record investment in bond)