Answer:
The requirement of the question is provided below:
a. What were the proceeds received by Chico upon the sale of the bonds?
b. Prepare the entry made by Chico to record the sale of the bonds on December 31, 2015.
The proceeds from the issue is $4,498,488.41
The entries are:
Dr Cash $4,498,488.41
Cr Bonds payable $4,000,000
Cr Premium on bonds payable $498,488.41
Explanation:
The first task here is to determine the proceeds from the issue, which can be done using the present value formula in excel.
=pv(rate,nper,pmt,fv)
rate is the effective rate of 10% divided by 2,since coupon is paid twice a year.
nper is the time to maturity of 10 years multiplied by 2
pmt is the coupon payment paid twice a year, that is :12%/2*$4000,000=$240,000
fv is the value expected by investors upon redemption that is $4 million
=-pv(5%,20,240000,4000000)
pv=$4,498,488.41
