Answer:
1-a. Determine the price of the bonds at January 1, 2021.
PV of face value = $50 / (1 + 6%)⁴⁰ = $4,861,109
PV of coupon payments = $2.5 x 15.046 (PVIFA, 6%, 40 periods) = $37,615,000
market price = $42,476,109
1-b. Prepare the journal entry to record their issuance by Instaform.
Dr Cash 42,476,109
Dr Discount on bonds payable 7,523,891
Cr Bonds payable 50,000,000
2-a. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2021.
PV of face value = $50 / (1 + 4.5%)⁴⁰ = $8,596,435
PV of coupon payments = $2.5 x 18.40158 (PVIFA, 4.5%, 40 periods) = $46,003,961
market price = $54,600,396
2-b. Assume the market rate was 9%. Prepare the journal entry to record their issuance by Instaform.
Dr Cash 54,600,396
Cr Bonds payable 50,000,000
Cr Premium on bonds payable 4,600,396
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.
Dr Bonds receivable 50,000,000
Dr Discount on bonds receivable 4,600,396
Cr Cash 54,600,396
