Problem 1 On 112018 Football Corp issues 3000 9 1000 bonds T

Problem 1 On 1/1/2018, Football Corp. issues 3,000, 9%, $1,000 bonds. The bonds mature in 5 years and pay interest semiannually. The market rate for similar bonds is 8%. Each of $0.01 par common shares. On 1/2/2019, the bonds are trading at $54.75 per share. bond is convertible for 10 shares converted when Football\'s common stock is REQUIRED: 1) Prepare the journal entry for the issuance of the bonds. 2) Record all of the entries necessary for the bonds through 1/2/2019. Football has a fiscal year end of 12/31 3) Record the conversion of the bonds.

Solution

Answers

Bond Face Value

Market Interest rate (applicable for period/term)

PV of

$             3,000,000.00

at

4.0%

Interest rate for

10

term payments

PV of $1

0.675564169

PV of

$             3,000,000.00

=

$            3,000,000.00

x

0.675564169

=

$    2,026,692.51

A

Interest payable per term

at

4.5%

on

$      3,000,000.00

Interest payable per term

$                135,000.00

PVAF of 1$

for

4.0%

Interest rate for

10

term payments

PVAF of 1$

8.110895779

PV of Interest payments

=

$             135,000.00

x

8.110895779

=

$    1,094,970.93

B

Bond Value (A+B)

$    3,121,663.44

Period

Cash payment

Interest expense

Premium on Bonds payable

Carrying Value of Bond

Issued

$                    121,663

$                        3,121,663

30-06-2018

$                                 135,000

$             124,867

$                    (10,133)

$                        3,111,530

31-12-2018

$                                 135,000

$              124,461

$                    (10,539)

$                        3,100,991

Balance (Total)

$                                 270,000

$              249,328

$                    100,991

Requirement

Date

Accounts title

Debit

Credit

Working

1

01-Jan-18

Cash

$          3,121,663

[Cash received = Issue Value]

Premium on Bonds Payable

$                    121,663

[as per working]

Bonds Payable

$                 3,000,000

[face value]

[Bonds issued at a Premium]

2

30-Jun-18

Interest Expense

$              124,867

[see working above]

Premium on Bonds Payable

$                10,133

[see working above]

Cash

$                    135,000

[see working above]

[First semi annual interest paid]

31-Dec-18

Interest Expense

$              124,461

[see working above]

Premium on Bonds Payable

$                10,539

[see working above]

Cash

$                    135,000

[see working above]

[Second semi annual interest paid]

3

02-Jan-19

Bonds Payable

$          3,000,000

[Face Value]

Premium on Bonds Payable

$              100,991

[Balance remaining in account]

Common Stock

$                             300

[3000 bonds x 10 shares x $0.01 par]

Paid In Capiatl in excess of Par - Common Stock

$                    100,691

[remaining balance]

[Bonds payable converted into Common Stock]

	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$             3,000,000.00	at	4.0%	Interest rate for	10	term payments
PV of $1	0.675564169
PV of	$             3,000,000.00	=	$            3,000,000.00	x	0.675564169	=	$    2,026,692.51	A
Interest payable per term	at	4.5%	on	$      3,000,000.00
Interest payable per term	$                135,000.00
PVAF of 1$	for	4.0%	Interest rate for	10	term payments
PVAF of 1$	8.110895779
PV of Interest payments	=	$             135,000.00	x	8.110895779	=	$    1,094,970.93	B
				Bond Value (A+B)	$    3,121,663.44