ACCT 306 WEEK 6 HOMEWORK

Brief Exercise 14-2 (Algo) Determining the price of bonds [LO14-2]

A company issued 5%, 20-year bonds with a face amount of $60 million. The market yield for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price did the bonds sell?

Note: Do not round intermediate calculations and round you final answer to nearest whole dollar. Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Brief Exercise 14-4 (Algo) Determining the price of bonds [LO14-2]

A company issued 10%, 20-year bonds with a face amount of $110 million. The market yield for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price did the bonds sell?

Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar. Use tables, Excel, or a financial calculator.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Exercise 14-2 (Algo) Determine the price of bonds in various situations [LO14-2]

Determine the price of a $1.3 million bond issue under each of the following independent assumptions:

  1. Maturity 10 years, interest paid annually, stated rate 4%, effective (market) rate 5%.
  2. Maturity 10 years, interest paid semiannually, stated rate 4%, effective (market) rate 5%.
  3. Maturity 10 years, interest paid semiannually, stated rate 5%, effective (market) rate 4%.
  4. Maturity 20 years, interest paid semiannually, stated rate 5%, effective (market) rate 4%.
  5. Maturity 20 years, interest paid semiannually, stated rate 5%, effective (market) rate 5%.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1.)

Exercise 14-6 (Algo) Bonds; issuance; effective interest [LO14-2]

The Gonzalez Group issued $960,000 of 11% bonds on June 30, 2024, for $1,042,368.

  • The bonds were dated on June 30 and mature on June 30, 2044 (20 years).
  • The market yield for bonds of similar risk and maturity is 10%.
  • Interest is paid semiannually on December 31 and June 30.

Required:

  1. to 3.Prepare the journal entries to record their issuance by The Gonzalez Group on June 30, 2024, interest on December 31, 2024 and interest on June 30, 2025 (at the effective rate).

Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.

Exercise 14-29 (Algo) Reporting bonds at fair value [LO14-6]

Federal Semiconductors issued 9% bonds, dated January 1, with a face amount of $810 million on January 1, 2024.

  • The bonds sold for $740,505,700 and mature on December 31, 2043 (20 years).
  • For bonds of similar risk and maturity the market yield was 10%.
  • Interest is paid semiannually on June 30 and December 31.
  • Federal determines interest at the effective rate.
  • Federal elected the option to report these bonds at their fair value.
  • On December 31, 2024, the fair value of the bonds was $730 million as determined by their market value in the over-the-counter market.

Assume the fair value of the bonds on December 31, 2025, had risen to $736 million.

Required:

Complete the below table to record the following journal entries.

  1. & 2.Prepare the journal entries to record interest on June 30, 2024, December 31, 2024, and adjust the bonds to their fair value for presentation in the December 31, 2024 balance sheet, and record interest on June 30, 2025, December 31, 2025, and adjust the bonds to their fair value for presentation in the December 31, 2025, balance sheet. Federal determined that none of the change in fair value in 2024 was due to a decline in general interest rates and one-half of the increase in fair value in 2025 was due to a decline in general interest rates.

Problem 14-5 (Algo) Issuer and investor; effective interest; amortization schedule; adjusting entries [LO14-2]

On February 1, 2024, Sanyal Motor Products issued 6% bonds, dated February 1, with a face amount of $75 million.

  • The bonds mature on January 31, 2028 (four years).
  • The market yield for bonds of similar risk and maturity was 8%.
  • Interest is paid semiannually on July 31 and January 31.
  • Barnwell Industries acquired $75,000 of the bonds as a long-term investment.
  • The fiscal years of both firms end December 31.

Required:

  1. Determine the price of the bonds issued on February 1, 2024.

2-a. Prepare amortization schedules that indicate Sanyal’s effective interest expense for each interest period during the term to maturity.

2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.

  1. Prepare the journal entries to record the issuance of the bonds by Sanyal and Barnwell’s investment on February 1, 2024.
  2. Prepare the journal entries by both firms to record all events related to the bonds through January 31, 2026.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)