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On June 1, 2019, Everly Bottle Company issued $3,000,000 of 8%, 10 year bonds, on June 1, 2019
On June 1, 2019, Everly Bottle Company issued $3,000,000 of 8%, 10 year bonds, on June 1, 2019. The market rate for such bonds is 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method. Round all calculations to the nearest dollar.
Instructions
(a) Determine the selling price of the bonds.
(b) Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31, using the effective interest method. Include only the first four years.
(c) Journalize the issuance of the bonds.
(d) Journalize the payment of interest and the related amortization on May 31, 2020.
(e) Assuming that interest and discount amortization are recorded each May 31, prepare the adjusting entry to be made on December 31, 2021.
Expert Solution
a) Computation of Selling Price of Bonds using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Selling Price of Bonds = ?
Rate = 10%
Nper = 10 years
PMT = $3,000,000*8% = $240,000
FV = $3,000,000
Substituting the values in formula:
=-pv(10%,10,240000,3000000)
PV or Selling Price of Bonds = $2,631,325.97 or $2,631,326
b) PFA
C) PFA
d) PFA
e) PFA
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