Bonds_-_Solution

Bonds_-_Solution - 4,619 514,419 July 1, 2012 15,000 10,288...

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A Ltd. Has an Oct 31 year end. On July 1, 2010, they issued 500 bonds with a par value of $1,000 and  expires in 3 years. The bonds paid interest semi-annually and had a stated rate of 6%. The company uses  an effective interest rate method of amortization. The market rate is currently 4%. (a) Prepare the journal entry that is required on the issuance of the bond. Journal Entry DR Cash 528,007 CR Bonds Payable 28,007 CR Bonds Premium 500,000 PV Calculation PV of Principle = 443,986 PVA of Interest = 84,021 Value of Bond = 528,007 (b) Prepare the amortization table for the bond. Amortizatio n Table Date Interest Payment Interest Expense Amortizatio n Carrying Value July 1, 2010 528,007 Jan 1, 2011 15,000 10,560 4,440 523,567 July 1, 2011 15,000 10,471 4,529 519,039 Jan 1, 2012 15,000 10,381
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Unformatted text preview: 4,619 514,419 July 1, 2012 15,000 10,288 4,712 509,708 Jan 1, 2013 15,000 10,194 4,806 504,902 July 1, 2013 15,000 10,098 4,902 500,000 (c) Prepare the adjusting entry that needs to be made on Oct 31, 2011. Journal Entry DR Interest Expense 6,921 DR Bonds Premium 3,079 CR Interest Payable 10,000 (d) Prepare the journey entry required on the expiry date of the bond. Journal Entry for Bond Interest DR Interest Expense 10,098 DR Bonds Premium 4,902 CR Cash 15,00 0 Journal Entry for Bond Principle DR Bonds Payable 500,000 CR Cash 500,00 0 (e) Prepare the initial journal entry if the bonds paid interest quarterly. Journal Entry DR Cash 528,138 CR Bonds Payable 28,138 CR Bonds Premium 500,000 PV Calculation PV of Principle = 443,725 PVA of Interest = 84,413 Value of Bond = 528,138...
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This note was uploaded on 01/18/2012 for the course AFM 101 taught by Professor Kennedy during the Fall '08 term at Waterloo.

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Bonds_-_Solution - 4,619 514,419 July 1, 2012 15,000 10,288...

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