# MGTB06-Ch11(1) Additional Q&A - Chapter 11(1...

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Chapter 11(1) Additional Question Question: Recording Bond Issuance and Interest Payments Orion Inc. is planning to issue \$100,000, 5-year, 8% bonds. Interest is payable semi-annually each July 31 and January 31. All of the bonds will be sold on August 1, 2010; they mature on July 31, 2015. Orion’s year-end is December 31. Required: 1. Compute the issue (sale) price on August 1, 2010, if the yield is : (a)8% (b)7% (c)9% 2. Prepare all journal entries for the above three cases in 2010. 3. Prepare all journal entries for the above three cases in 2011. 4. Show how the bond interest expense and the bonds payable should be reported on the annual financial statements for 2010 and 2011.

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Chapter 11(1) Solutions to Additional Question Principal: \$100,000 Interest Payments: \$100,000 x 8%÷2= \$4,000 Maturity: 5 years Payments: 10 (a) Yield @ 8% PVIF x Principal \$100,000 x PVIF (4%,10) = \$100,000 x 0.67556= \$67,556 PVIFA x Int. Payments \$4,000 x PVIFA (4%,10) = \$4,000 x 8.1109 = \$32,444 Bond Proceeds: \$100,00 0 (b) Yield @ 7% PVIF x Principal \$100,000 x PVIF (3. 5%,10) = \$100,000 x 0.70892= \$70,892 PVIFA x Int. Payments \$4,000 x PVIFA (3. 5%,10) = \$4,000 x 8.31661 = 33,266 Bond Proceeds: \$104,15 8 (c) Yield @ 9% PVIF x Principal \$100,000 x PVIF (4. 5%,10)
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