On February 1, 2018, Cromley Motor Products issued 6% bonds,dated February 1, with a...

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Accounting

On February 1, 2018, Cromley Motor Products issued 6% bonds,dated February 1, with a face amount of $50 million. The bondsmature on January 31, 2022 (4 years). The market yield for bonds ofsimilar risk and maturity was 8%. Interest is paid semiannually onJuly 31 and January 31. Barnwell Industries acquired $50,000 of thebonds as a long-term investment. The fiscal years of both firms endDecember 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1and PVAD of $1)

Required:
1. Determine the price of the bonds issued on February 1,2018.
2-a. Prepare amortization schedules that indicateCromley’s effective interest expense for each interest periodduring the term to maturity.
2-b. Prepare amortization schedules that indicateBarnwell’s effective interest revenue for each interest periodduring the term to maturity.
3. Prepare the journal entries to record theissuance of the bonds by Cromley and Barnwell’s investment onFebruary 1, 2018.
4. Prepare the journal entries by both firms torecord all subsequent events related to the bonds through January31, 2020.

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Solution 1 Computation of Bond Price Table values are based on n 8 i 4 Cash flow Table Value Amount Present Value Par Maturity Value 0730690 50000000 36534510 Interest Annuity 6732745 1500000 10099117 Price of bonds 46633628 Solution 2a Bond Amortization schedule Cromley Motors Effective Interest Expense Method Payment no Cash payment Effective interest Discount Amortized Outstanding balance 46633628 1 1500000 1865345 365345 46998973 2 1500000 1879959 379959 47378932 3 1500000 1895157 395157 47774089 4 1500000 1910964 410964 48185052 5 1500000 1927402 427402 48612454 6 1500000 1944498 444498 49056953 7 1500000 1962278 462278 49519231 8 1500000 1980769 480769 50000000 See Answer

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In: AccountingOn February 1, 2018, Cromley Motor Products issued 6% bonds,dated February 1, with a face...On February 1, 2018, Cromley Motor Products issued 6% bonds,dated February 1, with a face amount of $50 million. The bondsmature on January 31, 2022 (4 years). The market yield for bonds ofsimilar risk and maturity was 8%. Interest is paid semiannually onJuly 31 and January 31. Barnwell Industries acquired $50,000 of thebonds as a long-term investment. The fiscal years of both firms endDecember 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1and PVAD of $1)Required:1. Determine the price of the bonds issued on February 1,2018.2-a. Prepare amortization schedules that indicateCromley’s effective interest expense for each interest periodduring the term to maturity.2-b. Prepare amortization schedules that indicateBarnwell’s effective interest revenue for each interest periodduring the term to maturity.3. Prepare the journal entries to record theissuance of the bonds by Cromley and Barnwell’s investment onFebruary 1, 2018.4. Prepare the journal entries by both firms torecord all subsequent events related to the bonds through January31, 2020.