Answer and Step by Step Explanation:
A.Price at Issuance (Proceeds) = PV of bond’s cash flows = PV of coupon annuity + PV of payment at maturity (face value)
Coupon Payment = 600,000 x 7.5% / 2 = 22,500
Number of coupon payments = 8 (2 x 4 years)
Market rate of 8.5% => use 4.25% discount rate for semiannual payments
Price at Issuance = 6.6638 x 22,500 + 0.7168 x 600,000 = $580,016 (discount)
B.Journal Entry at Issuance:
DrCash (A) 580,016
Cr Bond Payable (L) 580,016
C.Journal Entry on June 30, :
Dr Interest Expense 24,650 (580,016 x 4.25%)
Cr Bond Payable 2,150 Cash 22,500
D.As of June 30, :
Bond Payable (L) $582,166
PV of $1 annuity for 8 periods at 4.25% is 6.6638.
PV of a single $1 payment in 8 periods at 4.25% is 0.7168
