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Artyom0805 [142]
1 year ago
14

On January 1 of this year, Trucks R Us Corporation issued bonds with a face value of $ 2,000,000 and a coupon rate of 10 percent

. The bonds mature in five years and pay interest semiannually every June 30 and December 31. When the bonds were sold, the annual market rate of interest was 10 percent.Required:
(d) What is the book value of the bonds on December 31 of this year? December 31 of next year?
Business
1 answer:
Anestetic [448]1 year ago
6 0

Bonds Payable amount reflected in balance sheet = $2192890

Face Value = $2000000

Coupon Rate = 10%

Maturity Period = 10 years

Number of compounding = 2

Interest = $2000000 * 10% * 6/12 = $100000

Period = 2 * 10 = 20

Maturity Value = Face Value = $2000000

Market Interest Rate semiannually = 0.085 / 2 = 0.0425

Market Value = Present Value of Future Cash Flows

= PV of Interest + PV of maturity value

= (Interest * PVAF (4.25%, 20)) + (Maturity Value * PVIF (4.25%, 20))

= (100000 * 13.29437) + (2000000 * 0.434989)

= $1329437 + $869978

= $2199415

Since market value is greater than face value, we can say that bonds are issued at a premium.

Premium = $2199415 - $2000000 = $199415

Journal Entry to record the issuance of bonds:

Cash a/c                                               Dr          $2199415

     To Bonds Payable a/c                                 $2000000                            

     To Premium on the issue of bonds            $199415

Bonds Payable amount is a liability account that carries the quantity owed to bondholders by way of the company. This account usually seems in the lengthy-term liabilities section of the stability sheet, on account that bonds usually mature in more than one year.

Learn more about Bonds Payable amount here: brainly.com/question/7158291

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Answer: Quarterly

Explanation:

Annual interest rate = 4.00%

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To know if the bank is compounding interest daily or quarterly goes thus:

Effective Annual rate can be calculated using:

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