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 10%. 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.) 3.33 points eBook 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. Print References Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg 3 Reg 4 Req 5 and 6 Req 7 Prepare an amortization schedule that determines interest at the effective rate each period. (Round intermediate calculations and final answers to the nearest whole dollar.) Cash Interest Bond Interest Expense Discount Amortization Carrying Value Semiannual Interest Period-End 01/01/2021 06/30/2021 12/31/2021 06/30/2022 12/31/2022 06/30/2023 12/31/2023 06/30/2024 12/31/2024 Total < Reg 2 Req 4 >

Answer 1

Solution 1:

Chart Values are based on:
n= (4 Years*2)	8	Half years
i= (11%/2)	5.00%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.676839	*	$600,000	=	$406,104
Interest (Annuity) [$800,000*10%*6/12]	6.463213	*	$18,000	=	$116,338
Price of Bonds					$522,441

Solution 2:

Patey Pontoons
Journal Entries
Date	Particulars	Debit	Credit
01-Jan-21	Cash A/c Dr	$522,441
	Discount on Bond Payable	$277,559
	To bonds payable		$800,000
	(Being bond issued at Discount)

Solution 3:

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Discount amortization	Unamortized discount	Carrying value
01-Jan-21				$277,559	$522,441
30-Jun-21	$18,000	$26,122	$8,122	$269,436	$530,564
31-Dec-21	$18,000	$26,528	$8,528	$260,908	$539,092
30-Jun-22	$18,000	$26,955	$8,955	$251,954	$548,046
31-Dec-22	$18,000	$27,402	$9,402	$242,551	$557,449
30-Jun-23	$18,000	$27,872	$9,872	$232,679	$567,321
31-Dec-23	$18,000	$28,366	$10,366	$222,313	$577,687
30-Jun-24	$18,000	$28,884	$10,884	$211,429	$588,571
31-Dec-24	$18,000	$29,429	$11,429	$200,000	$600,000

Solution 4:

Journal Entries
Date	Particulars	Debit	Credit
30-Jun-21	Interest Expense Dr	$26,122
	To Discount on bond payable		$8,122
	To Cash		$18,000
	(To record Interest on June 30, 2021)

Solution 5:

Bonds reported on December 31, 2021 =

539092

Solution 6:

Interest expense to be reported in Income statement =

52650

Solution 7:

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-24	Interest Expense Dr	$29,429
	To Discount on bond payable		$11,429
	To Cash		$18,000
31-Dec-24	Bond Payable Dr	$800,000
	To Cash		$800,000