On January 1 2018 NFB Visual Aids issued 740000 of its 20yea

On January 1, 2018, NFB Visual Aids issued $740,000 of its 20-year, 8% bonds. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. NFB Visual Aids records interest expense at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2018, the fair value of the bonds was $620,000 as determined by their market value in the over-the-counter market. General (risk-free) interest rates did not change during 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Required:

1-a. Determine the price of the bonds at January 1, 2018.
1-b to 4. Prepare the necessary Journal entries.

Solution

PRICE OF BONDS :

INTEREST

29600*17.1591(w.n)

507909

PRINCIPAL

740000*0.142(w.n)

105080

PRICE OF BONDS (PRESENT VALUE)

612989

W.N

740000*4%

29600

Present value of ordinary annuity of $1;n=40 ;i=5% is 17.1591

Present value of $1; n=40; i=5% is 0.142

JOURNAL ENTRIES

date

Particulars

debit

Credit

Jan 1, 18

cash

612989

Discount on bonds payable

127011

Bonds payable

740000

(being bonds issued)

Jun 30, 18

Interest expense

30650

Discount on bonds payable

1050

cash

29600

(being interest paid)

612989*5% = 30650

Dec 31, 18

Interest expense

30702

Discount on bonds payable

1102

cash

29600

(being interest paid)

(612989+1050)*5% = 30702

Dec 31, 18

Unrealizing holding loss

4859

Fair value adjustments

4858

(being bonds adjusted to the fair value

(620000-612989-1050-1102

PRICE OF BONDS :
INTEREST	29600*17.1591(w.n)	507909
PRINCIPAL	740000*0.142(w.n)	105080
PRICE OF BONDS (PRESENT VALUE)		612989
W.N
740000*4%	29600
Present value of ordinary annuity of $1;n=40 ;i=5% is 17.1591
Present value of $1; n=40; i=5% is 0.142