Question
Sparty Corporation issued seven-year, 8% bonds with a total face value of $1,000,000 on January 1, 2020. Interest is paid annually on December 31. The
Sparty Corporation issued seven-year, 8% bonds with a total face value of $1,000,000 on January 1, 2020. Interest is paid annually on December 31. The market rate of interest on this date was 6%. Sparty uses the effective interest rate method (the method we learned in class).
Required:
1. Using Excel, determine the proceeds of the bond sale on 1/1/20.
2. Using the present value of a dollar table (found in Appendix E of your text or online), what factor would you use to calculate the present value of the face value of the bond?
3. Using the present value of an ordinary annuity table (found in Appendix E of your text or on-line), what factor would you use to calculate the present value of the coupon payments? For your own benefit, you may want to demonstrate that the price of the bonds is the same using the factors from the table that you got in Excel. You will find a difference due to rounding.
4. Did this bond sell at a premium or discount?
5. Using Excel, prepare a seven-year bond amortization schedule for these bonds. There are examples in your notes and posted on D2L. Use formulas and reference cells in Excel to show how you calculate your numbers.
6. Prepare journal entries to record (1) the initial sale of the bonds on January 1, 2020, (2) the interest payment for the period ended December 31, 2020 and, (3) the final interest and face value payment at maturity on December 31, 2026.
7. Show how the balance sheet would report the bond liability and related premium/discount on December 31, 2021.
Step by Step Solution
3.46 Rating (166 Votes )
There are 3 Steps involved in it
Step: 1
1 The proceeds of the bond sale on 1120 are 957143 2 The factor to c...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started