Journalize the entry to record the amount of the cash proceeds from the sale of the bonds

Journalize the entry to record the amount of the cash proceeds from the sale of the bonds

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Journalize the entry to record the amount of the cash proceeds from the sale of the bonds. (How to set up table & compute cash proceeds?) The coupon or stated interest rate is 11%. The yield or market rate is 10%. The symbols you need to know are: (pv 1, i, n) = present value of $1 discounted at i%, n periods from the present (pva, i, n) = present value of an annuity of $1 discounted at i%, for n periods. The price of the bond is computed as: $8,000,000(pv1, 5%, 20)+11%(1/2)(8,000,000)(pva, 5%, 20) In this problem, the bonds pay interest every 6 mths. Therefore one-half the yield rate is used for discounting over 20 discounting periods (bond has a 10-yr term). Using the present value table available at the 1st link, the bond price is: 8,000,000(0.3769) + 11%(1/2)(8,000,000)(12.4622) = 3,015,200 + 5,483,368 = 8,498,568. Journal entry: Dr Cash 8,498,568 Cr Bond premium 498,568 Cr Bond payable 8,000,000 2. Journalize the entries to record the following a. First semiannual interest payment on Dec 31, 2002, including the amortization of the bond premium, a....
View Full Document

Ask a homework question - tutors are online