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Banjo Education Corp. issued a 4%, $160,000 bond that pays interest semiannually each June 30 and December 31. The date of issuance was January 1, 2020. The bonds mature after four years. The market interest rate was 6%. Banjo Education Corp.'s year-end is December 31. Use TABLE 14A.1 and TABLE 14A.2. (For all the requirements, Use appropriate factor(s) from the tables provided.) Required: Preparation Component: 1. Calculate the issue price of the bond. (Round the final answer to the nearest whole dollar.) Issue price of the bond 2. Prepare a general journal entry to record the issuance of the bonds. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.) View transaction list Journal entry worksheet Record the sale of bonds on original issue date. 3. Determine the total bond interest expense that will be recognized over the life of these bonds. (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) Total bond interest expense 4. Prepare the first two years of an amortization table based on the effective interest method. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.) Period Ending Cash Interest Period interest Discount Paid Expense Amort. Unamortized Discount Carrying Value Jan. 1/20 June 30/20 Dec. 31/20 June 30/21 Dec. 31/21 5. Present the journal entries Banjo would make to record the first two interest payments. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.) View transaction list Journal entry worksheet 1 2 Record the six months' interest and discount amortization. Note: Enter debits before credits. Date General Journal Credit June 30, 2020 Record entry Clear entry View general journal Debit 5. Present the journal entries Banjo would make to record the first two interest payments. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.) View transaction list Journal entry worksheet 2 Record the six months' interest and discount amortization. Note: Enter debits before credits. Credit General Journal Date December 31, 2020 View general journal Record entry Clear entry 1 of 7 Beau Debit # Next >

User Ecodan
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1. Calculate the issue price of the bond.

To calculate the issue price of the bond, we need to determine the present value of the bond's cash flows. The bond has a face value of $160,000, a coupon rate of 4%, semiannual coupon payments, a maturity of 4 years, and a market interest rate of 6%.

Using the present value of an ordinary annuity table (Table 14A.2), the factor for a 4-year bond at a 3% semiannual interest rate is 3.4651.

Present value of coupon payments = (Coupon payment) × (Present value factor)

Present value of coupon payments = ($160,000 × 4% / 2) × 3.4651 = $5,504.32

Using the present value of a single sum table (Table 14A.1), the factor for a 4-year bond at a 3% semiannual interest rate is 0.8227.

Present value of the face value = (Face value) × (Present value factor)

Present value of the face value = $160,000 × 0.8227 = $131,632

Issue price of the bond = Present value of coupon payments + Present value of the face value

Issue price of the bond = $5,504.32 + $131,632 = $137,136.32 (rounded to $137,136)

2. Prepare a general journal entry to record the issuance of the bonds.

The journal entry to record the issuance of the bonds would be:

Date Account Debit Credit

Jan 1, 2020 Cash $137,136

Bonds Payable $137,136

3. Determine the total bond interest expense that will be recognized over the life of these bonds.

The total bond interest expense over the life of the bonds can be calculated by subtracting the face value from the issue price:

Total bond interest expense = Issue price - Face value

Total bond interest expense = $137,136 - $160,000 = -$22,864 (rounded to -$22,864)

Note: The negative value indicates a discount on the bond.

4. Prepare the first two years of an amortization table based on the effective interest method.

Using the effective interest method, the bond discount is amortized over the life of the bond. Here's the amortization table for the first two years:

Period Ending Cash Interest Period Interest Discount Paid Expense Amort. Unamortized Discount Carrying Value

Jan 1/20 $22,864 $22,864 $114,272

June 30/20 $2,740 $2,740 $20,124 $94,536

Dec 31/20 $22,864 $22,864 $71,672

June 30/21 $2,740 $2,740 $19,124 $51,660

Dec 31/21 $22,864 $22,864 $28,796

5. Present the journal entries Banjo would make to record the first two interest payments.

The journal entries to record the first two interest payments would be:

Date Account Debit Credit

June 30, 2020 Bond Interest Expense $2,740

Discount on Bonds Payable $2,740

Date Account Debit Credit

December 31, 2020 Bond Interest Expense $2,740

Discount on Bonds Payable $2,740

User BLC
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