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Gupta Corporation issued four-year, 12% bonds with a total face value of $800,000 on January 1, 2018. Interest is paid semi-annually on June 30 and December 31. The market rate of interest on this date was 8%. Gupta uses the effective interest rate method.

Required:

Using Excel, determine the proceeds of the bond sale on 1/1/18.

Using the present value of a dollar table (found in Appendix E of your text), what factor would you use to calculate the present value of the face value of the bond? In other words, what factor would you use to calculate the present value of the $800,000 face value that will be paid to the bondholders upon maturity of the bond?

Using the present value of an ordinary annuity table (found in Appendix E of your text), what factor would you use to calculate the present value of the coupon payments?

Demonstrate that the PV amount you would get using the factors your identified in #2 and #3 gives you the same proceeds of the bond sale as you calculated using Excel in #1. Note that you might be off by a few cents due to rounding.

Did this bond sell at a premium or discount? In 1-2 sentences explain why it sold at a premium or discount.

Using Excel, prepare a four-year (or eight-six month) bond amortization schedule for these bonds. Use formulas and reference cells in Excel. Your TA should be able to follow how you calculate your numbers.

Prepare journal entries to record (1) the sale of the bonds on January 1, 2018, (2) the interest payment for the period ended June 30, 2019 and, (3) the final interest and face value payment at maturity on December 31, 2021.

Show how the balance sheet would report the bond liability and related premium/discount on June 30, 2019.

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