C-Homework #3
zrv
On January 1, 2011, Instaform, Inc., issued 10% bonds with a face amount of $50 million, dated January
1. The bonds mature in 2030 (20 years). The market yield for bonds of similar risk and maturity is 12%.
Interest is paid semiannually. (Use
Table 2
and
Table 4
.)
Required:
(1-a)
Determine the price of the bonds at January 1, 2011.
(Enter your answer in dollars not in
millions. Round PV factors to 5 decimal places and final answer to the nearest dollar
amount. Omit the "$" sign in your response.)
Price of the bonds
$
42,476,750
(1-b)
Prepare the journal entry to record their issuance by Instaform.
(Enter your answers in dollars
not in millions. Round PV factors to 5 decimal places and final answers to the nearest dollar
amount. Omit the "$" sign in your response.)
General Journal
Debit
Credit
Cash
42,476,7
Discount on bonds
7,523,25
Bonds payable
50,000,000
(2-a)
Assume the market rate was 9%. Determine the price of the bonds at January 1, 2011.
(Enter your
answer in dollars not in millions. Round PV factors to 5 decimal places and final answer to
the nearest dollar amount. Omit the "$" sign in your response.)
Price of the bonds
$
54,600,450
(2-b)
Prepare the journal entry to record their issuance by Instaform.
(Enter your answers in dollars
not in millions. Round PV factors to 5 decimal places and final answers to the nearest dollar
amount. Omit the "$" sign in your response.)
General Journal
Debit
Credit
Cash
54,600,450
Premium on bonds
4,600,45
Bonds payable
50,000,0
(3)
Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using
the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.
(Enter
your answers in dollars not in millions. Round PV factors to 5 decimal places and final
answers to the nearest dollar amount. Omit the "$" sign in your response.)
General Journal
Debit
Credit
Investment in bonds
50,000,0
Premium on bond investment
4,600,45
Cash
54,600,450

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C-Homework #3
zrv
On January 1, 2011, Tennessee Harvester Corporation issued debenture bonds that pay interest
semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below:
Payment
Cash
Payment
Effective
Interest
Increase in
Balance
Outstanding
Balance
6,627,273
1
320,000
331,364
11,364
6,638,637
2
320,000
331,932
11,932
6,650,569
3
320,000
332,528
12,528
6,663,097
4
320,000
333,155
13,155
6,676,252
5
320,000
333,813
13,813
6,690,065
6
320,000
334,503
14,503
6,704,568
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
38
320,000
389,107
69,107
7,851,247
39
320,000
392,562
72,562
7,923,809
40
320,000
396,191
76,191
8,000,000
Required:
(1)
What is the face amount of the bonds?
(Omit the "$" sign in your response.)
Face amount
$
8,000,000
(2)
What is the initial selling price of the bonds?
(Omit the "$" sign in your response.)
Initial selling price
$
6,627,273
(3)
What is the term to maturity in years?
Term to maturity
20
years
(4)
Interest is determined by what approach?
Effective interest rate
(5)
What is the stated annual interest rate?
(Omit the "%" sign in your response.)
Annual interest rate
8
%
(6)
What is the effective annual interest rate?
(Round your answer to the nearest whole percent. Omit
the "%" sign in your response.)
Effective annual interest rate
10
%
(7)
What is the total cash interest paid over the term to maturity?
(Omit the "$" sign in your response.)
Total cash interest paid
$
12,800,000
(8)
What is the total effective interest expense recorded over the term to maturity?
(Omit the "$" sign in
your response.)
Effective interest expense
$
14,172,727

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