Bill Corporation issued four-year, 8% bonds with a total face value of $1,000,000 on January 1, 2020.
Question:
Bill Corporation issued four-year, 8% bonds with a total face value of $1,000,000 on January 1, 2020. Interest is paid semi-annually on June 30 and December 31. The market rate of interest on this date was 10%. Bill uses the effective interest rate method.
Required:
1. Determine the proceeds of the bond sale on 1/1/20. Explain your method of calculation.
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.
4. Did this bond sell at a premium or discount?
5. Using Excel, prepare a four-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 sale of the bonds on January 1, 2020, (2) the interest payment for the period ended June 30, 2020 and, (3) the final interest and face value payment at maturity on December 31, 2023.
7. Show how the balance sheet would report the bond liability and related premium/discount on December 31, 2021
