Question

On January 1, 2021, Instaform, Inc., issued 10% bonds with a face amount of $51 million, dated January 1. The bonds mature in 2040 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannual
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 9%. Determine the price of the bonds at January 1, 2021.
2-b. Assume the market rate was 9%. 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.

Answer 1

Answer:

1a. The price of the bonds at 12% yield is $43,326,388.60

1b. The journal entries to record the issuance are as follows:

Dr Cash                                          $43,326,388.60

Dr Discount on the bond                  $7,673,611.40

Cr Bonds payable                                                    $51,000,000

2aAt the market rate of 9% bonds issue price is $55,692,404.03

2b.Journal entries when market rate is 9%

Dr Cash                                          $55,692,404.03

Cr Premium on the bond                                         $4,692,404.03  

Cr Bonds payable                                                      $51,000,000.00

3.The journal entries if Broadcourt Electronics purchashed the entire issue as shown in 2 above

Dr  Premium on the bonds                         $4,692,404.03  

Dr    Investment in bonds                         $51,000,000.00

Cr  Cash                                                                                  $55,692,404.03

Explanation:

Find attached.

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