On January 1, 2016, Instaform, Inc., issued 10% bonds with a face amount of $50 million, dated January 1. The bonds mature in 2035 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually. Required: 1. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance by Instaform. 2. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance by Instaform. 3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.

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Asked Jan 21, 2020
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On January 1, 2016, Instaform, Inc., issued 10% bonds with a face amount of $50 million, dated January 1. The bonds mature in 2035 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually. Required: 1. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance by Instaform. 2. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance by Instaform. 3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.

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Step 1

Bond is an instrument which represent the amount of loan raised by the borrower from the lender. It has a fixed interest. The bond redemption includes the repayment of interest & loan amount raised by the borrower.

A journal entry is prepared by the company to record the non-economic & economic transactions of the business. It is prepared on daily basis. All the quantitative transactions are recorded. The recording of entry involves debiting one account and crediting another account.

Step 2

1)

Principal: $50,000,000

Semi-annual interest rate: 10%/2 = 5%

Semi-annual market interest rate: 12%/2 = 6%

n: 20×2 = 40 periods

Present value of an ordinary annuity of $1, n:40 at 6% = 15.04630

Present value of $1, n:40 at 6% = 0.09722

Price of the bond is calculated as follows:

Accounting homework question answer, step 2, image 1
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Step 3

The journal entry to record the t...

Accounting homework question answer, step 3, image 1
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