Check my work National Orthopedics Co issued 8 bonds dated J

Check my work National Orthopedics Co. issued 8% bonds, dated January 1, with a face amount of $550,000 on January 1, 2018. The bonds mature on December 31, 2021 (4 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31. (FV of $1. PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2018. 2. Prepare the journal entry to record their issuance by National on January 1, 2018. 3. Prepare an amortization schedule that determines interest at the effective rate each period. 4. Prepare the journal entry to record interest on June 30, 2018. 5. Prepare the appropriate journal entries at maturity on December 31, 2021

Solution

principal 550,000 interest paid on bonds 550,000*4%= 22000 For Principal use PV of $1 table at 5% for 8 years for interest use PV of ordinary annuity table at 5% for 8 years 1) Calculation of bonds issue price table values are based on n= 8 i= 5.00% Cash flow Amount PV principal 550,000 372262 (550,000*.67684) interest expense 22000 142191 (22000*6.46321) price of bonds 514453 (please use factor table as given in your question ) 2) Date Accoounting titles & Explanations Debit Credit 1/1/2018 Cash 514453 Discount on bonds payable 35,547 Bonds payable 550,000 3) interest cash bond discount carring period interest interest amortizatioon value end expense 5.00% 1/1/2018 514453 06/30/18 22000 25723 3723 518175 12/31/18 22000 25909 3909 522084 06/30/19 22000 26104 4104 526188 12/31/19 22000 26309 4309 530498 06/30/20 22000 26525 4525 535023 12/31/20 22000 26751 4751 539774 06/30/21 22000 26989 4989 544762 12/31/21 22000 27238 5238 550000 total 176000 211548 35548 4) Date Accoounting titles & Explanations Debit Credit 30/6/2018 interest expense 25723 Discount on bonds 3723 cash 22000 Date Accoounting titles & Explanations Debit Credit 12/31/21 interest expense 27238 Discount on bonds 5238 cash 22000 bonds payable 550,000 cash 550,000