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Homework answers / question archive / Moto Manufacturing issued $7,000,000 face value of 3
Moto Manufacturing issued $7,000,000 face value of 3.5% bonds on July 1st, 2021. Additional information on the bond issue is as follows:
Bond Date July 1st, 2021 Maturity Date July 1st, 2031 Yield rate 3% Interest payment dates June 30th and December 31st Bond discount/premium amortization Effective Interest Rate Method
Year end December 31st (For all requirements, do not round intermediate calculations. Round the final answers to the nearest whole dollar.) Required:
1. Were the bond issued at a par, premium, or discount?
Issued at discount Issued at premium Issued at par
2. Determine the bond cash proceeds? Calculate the amount of premium/discount, if any. (If a premium, enter an absolute amount; if a discount, enter "-".)
Cash Proceeds
Amount of Premium/Discount (if a discount, enter "-".)
3. Journalize the issuance of bond on July 1st and interest payment on December 31st, 2021.
View transaction list
View journal entry worksheet
No Date General Journal Debit Credit 1 July 01, 2021 Bond interest expense Premium on bonds payable Cash 2 December 31, 2021 Bond interest expense Premium on bonds payable Cash
4. On January 1st, 2027, Moto redeemed 40% of the bonds outstanding at 1021/4. a. Calculate the carrying value of the bond on January 1st, 2027.
Bond Carrying Value
b. Calculate the amount of cash paid.
Cash paid
c. Calculate the gain or loss on redemption.
O No Gain/Loss O Gain O Loss
Amount of Gain/Loss. Enter "2, if it is a loss.
5. Please record the journal entries for the bond redemption on January 1st and the interest payment on June 30th, 2027.
View transaction list
Journal entry worksheet
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1
2
Record the journal entry on January 1, 2027.
Note: Enter debits before credits.
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Date
General Journal
Debit
Credit
January 01, 2027
Record entry
Clear entry
View general journal
1) The bond issued at premium.
2) Computation of Bond Cash Proceeds using PV Function in Excel and Amount of Premium/Discount:
=-pv(rate,nper,pmt,fv)
Here,
PV = Bond Cash Proceeds = ?
Rate = 3%/2 = 1.5%
Nper = From July 1st, 2021 to July 1st, 2031 = 10 years*2 = 20 periods
PMT = $7000000*3.5%/2 = 122,500
FV = $7,000,000
Substituting the values in formula:
=-pv(1.5%,20,122500,7000000)
PV or Bond Cash Proceeds = $7,300,451.18
The bond is issued at premium as Bond cash proceeds is higher than bond face value.
Amount of Premium = $7,300,451.18-$7,000,000 = $300,451.18
| 3) Journal Entries: | ||||
| No. | Date | General Journal | Debit | Credit |
| 1) | July 1, 2021 | Cash | 7300451.18 | |
| Premium on Bonds Payable | 300451.18 | |||
| Bonds Payable | 7000000.00 | |||
| 2) | December 31, 2021 | Interest Expenses (7300451.18*3%/2) | 109506.77 | |
| Premium on Bonds Payable | 12993.23 | |||
| Cash (7000000*3.5%/2) | 122500.00 | |||
4)
| Amortization Table | |||||
| Effective Interest Method | |||||
| Period-Ending | Cash Interest | Interest | Premium | Unamortized | Carrying |
| Paid | Expenses | Amortization | Premium | Value | |
| (7000000*3.5%/2) | (Carrying Value*3%/2) | (Interest Paid - Interest Expenses) | |||
| July 1, 2021 | 300451.18 | 7300451.18 | |||
| December 31, 2021 | 122500 | 109506.8 | 12993.23 | 287457.95 | 7287457.95 |
| June 30, 2022 | 122500 | 109311.9 | 13188.13 | 274269.82 | 7274269.82 |
| December 31, 2022 | 122500 | 109114 | 13385.95 | 260883.86 | 7260883.86 |
| June 30, 2023 | 122500 | 108913.3 | 13586.74 | 247297.12 | 7247297.12 |
| December 31, 2023 | 122500 | 108709.5 | 13790.54 | 233506.58 | 7233506.58 |
| June 30, 2024 | 122500 | 108502.6 | 13997.4 | 219509.18 | 7219509.18 |
| December 31, 2024 | 122500 | 108292.6 | 14207.36 | 205301.81 | 7205301.81 |
| June 30, 2025 | 122500 | 108079.5 | 14420.47 | 190881.34 | 7190881.34 |
| December 31, 2025 | 122500 | 107863.2 | 14636.78 | 176244.56 | 7176244.56 |
| June 30, 2026 | 122500 | 107643.7 | 14856.33 | 161388.23 | 7161388.23 |
| December 31, 2026 | 122500 | 107420.8 | 15079.18 | 146309.05 | 7146309.05 |
| June 30, 2027 | 122500 | 107194.6 | 15305.36 | 131003.69 | 7131003.69 |
| December 31, 2027 | 122500 | 106965.1 | 15534.94 | 115468.74 | 7115468.74 |
| June 30, 2028 | 122500 | 106732 | 15767.97 | 99700.78 | 7099700.78 |
| December 31, 2028 | 122500 | 106495.5 | 16004.49 | 83696.29 | 7083696.29 |
| June 30, 2029 | 122500 | 106255.4 | 16244.56 | 67451.73 | 7067451.73 |
| December 31, 2029 | 122500 | 106011.8 | 16488.22 | 50963.51 | 7050963.51 |
| June 30, 2030 | 122500 | 105764.5 | 16735.55 | 34227.96 | 7034227.96 |
| December 31, 2030 | 122500 | 105513.4 | 16986.58 | 17241.38 | 7017241.38 |
| June 30, 2031 | 122500 | 105258.6 | 17241.38 | 0.00 | 7000000.00 |
a) Carrying Value of Bonds on January 1, 2027 =7146309.05
b) Cash Paid = 7,000,000*40%*102.25% = 2,863,000
c) Loss on Redemption = 7146309.05 * 40%- 2,863,000 = 2,858,523.62 - 2,863,000 = 4,476.38
| 5) Journal Entries: | ||||
| No. | Date | General Journal | Debit | Credit |
| 1) | January 1, 2027 | Bonds Payable | 2800000.00 | |
| Premium on Bonds Payable | 58523.62 | |||
| Loss on Redemption | 4476.38 | |||
| Cash | 2863000 | |||
| 2) | December 31, 2027 | Interest Expenses | 64316.78 | |
| Premium on Bonds Payable | 9183.22 | |||
| Cash | 73500.00 | |||
| 5) Journal Entries: | ||||
| No. | Date | General Journal | Debit | Credit |
| 1) | January 1, 2027 | Bonds Payable | =7000000*40% | |
| Premium on Bonds Payable | =2863000-2800000-4476.38 | |||
| Loss on Redemption | 4476.38 | |||
| Cash | =7000000*40%*102.25% | |||
| 2) | December 31, 2027 | Interest Expenses | =7146309.05*60%*3%/2 | |
| Premium on Bonds Payable | =73500-64316.78 | |||
| Cash | =7000000*60%*3.5%/2 |
