Scribd Logo
Upload

Welcome to Scribd!

  • 63 views

    Ae 211 Problem 1-4 Solution

    Uploaded by

    Nhel Alvaro
    The document discusses 4 problems involving the issuance of bonds, including bonds issued at face value to yield 8% and 12%, bonds issued at a discount to yield 12%, and the journal entries for recording interest expense and premium/discount amortization over the life of the bonds. It provides the present value calculations for the bonds, issue prices, premiums or discounts, and carrying amounts on the balance sheet with the amortization of the premiums or discounts over time through interest expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Ae 211 Problem 1-4 Solution

    Uploaded by

    Nhel Alvaro
    63 views3 pages
    The document discusses 4 problems involving the issuance of bonds, including bonds issued at face value to yield 8% and 12%, bonds issued at a discount to yield 12%, and the journal entries for recording interest expense and premium/discount amortization over the life of the bonds. It provides the present value calculations for the bonds, issue prices, premiums or discounts, and carrying amounts on the balance sheet with the amortization of the premiums or discounts over time through interest expense.

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses 4 problems involving the issuance of bonds, including bonds issued at face value to yield 8% and 12%, bonds issued at a discount to yield 12%, and the journal entries for recording interest expense and premium/discount amortization over the life of the bonds. It provides the present value calculations for the bonds, issue prices, premiums or discounts, and carrying amounts on the balance sheet with the amortization of the premiums or discounts over time through interest expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    63 views3 pages

    Ae 211 Problem 1-4 Solution

    Uploaded by

    Nhel Alvaro
    The document discusses 4 problems involving the issuance of bonds, including bonds issued at face value to yield 8% and 12%, bonds issued at a discount to yield 12%, and the journal entries for recording interest expense and premium/discount amortization over the life of the bonds. It provides the present value calculations for the bonds, issue prices, premiums or discounts, and carrying amounts on the balance sheet with the amortization of the premiums or discounts over time through interest expense.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    AE211

    SOLUTION (PROBLEM 1-4)

    PROBLEM 1:

    1. Bonds were issued at face amount = 1,000,000

    2. Bonds were issued to yield 8%


    ( 1,000,000 X 8%) = 80,000

    3. Bonds were issued to yield 12%


    (1,000,000 X 12%) = 120,000

    4. Bonds were issued to yield 12 but were quoted at 98.


    (1,000,000 X 98 %) = 980,000

    PROBLEM 2:

    PV of 1 at 8% for 10 periods ( 1,000,000 X .4632) P 463,200


    PV of an ordinary annuity of 1 at 8% for 10 period ( 50,000 X 6.7101) 335,505
    Total present value: P 798,705

    Face amount P 1,000,000


    Market price or issue price 798,705
    Premium on bonds payable P 201,925

    DATE INTEREST PAID INTEREST EXPENSE PREMIUM CARRYING AMOUNT


    AMORTIZATION
    Jan. 1,2020 P 798,705
    Jun. 30, 2020 50,000 63,896.4 13,896.4 812,601.4
    Dec. 31,2020 50,000 65,008.11 15,008.11 827,609.51
    Jun. 30,2021 50,000 66,208.76 16,208.76 843,818,27
    Dec. 31,2021 50,000 67,505.46 17,505.46 861,323.73
    Jun. 30, 2022 50,000 68,905.90 18,905.90 880,229.63
    Dec. 31,2022 50,000 70,418.37 20,418.37 900,648

    JOURNAL ENTRIES FOR 20220


    Jan. 1, 2020
    Cash 798,705
    Premium on bonds payable 201,925

    Bonds Payable 1,000,000

    Dec. 31
    Interest expense 128,904.51
    Premium on bonds payable 28,904.51
    Cash 100,000

     Note that the annual payment of interest and premium of amortization ae compounded in one entry.

    PROBLEM 3:
    PV of 1 at 12% for 10 periods ( 1,000,000 X .3220) P 322,000
    PV of an ordinary annuity of 1 at 12% for 10 period ( 50,000 X 5.6502) 282,510
    Total PV: P 604,510

    Face amount P 1,000,000


    Market price or issue price 604,510
    Discount on bonds payable P 395,490

    Date Interest paid Interest expense Discount Carrying amount


    amortization
    Jan. 1,2020 P 604,510
    Jun. 30, 2020 50,000 72,541.2 22,541.2 627,051.2
    Dec. 31,2020 50,000 75,246.14 25,246.14 652,297.34
    Jun. 30,2021 50,000 78,275.68 28,275.68 680,572.99
    Dec. 31,2021 50,000 81,668.76 31,668.76 712,241.75
    Jun. 30, 2022 50,000 85,469.01 35,569.01 747,710.76
    Dec. 31,2022 50,000 89,725.29 39,725.29 787,436.05

    JOURNAL ENTRIES FOR 2020


    Jan. 1
    Cash 604,510
    Discount on bond payable 395,490
    Bond payable 1,000,000

    Jun. 30
    Interest expense 72,541.2
    Cash 50,000
    Discount on bond payable 22,541.2

    Dec. 31
    Interest expense 75,246.14
    Cash 50,000
    Discount on bond payable 25,246.14

    PROBLEM 4;

    You might also like