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On February 1, 2021, Cromley Motor Products issued 8% bonds, dated February 1, with a face...

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Accounting

On February 1, 2021, Cromley Motor Products issued 8% bonds,dated February 1, with a face amount of $90 million. The bondsmature on January 31, 2025 (4 years). The market yield for bonds ofsimilar risk and maturity was 10%. Interest is paid semiannually onJuly 31 and January 31. Barnwell Industries acquired $90,000 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) (Use appropriate factor(s) from the tablesprovided.)

Required:

1. Determine the price of the bonds issued on February 1,2021.

2-a. Prepare amortization schedules that indicate Cromley’seffective interest expense for each interest period during the termto maturity.

2-b. Prepare amortization schedules that indicate Barnwell’seffective interest revenue for each interest period during the termto maturity.

3. Prepare the journal entries to record the issuance of thebonds by Cromley and Barnwell’s investment on February 1, 2021.

4. Prepare the journal entries by both firms to record allsubsequent events related to the bonds through January 31, 2023

Answer & Explanation Solved by verified expert
4.1 Ratings (599 Votes)
1 Price of the bonds on February 1 2021 84183156 Maturity amount 90 million Semiannual coupon 90 million x 8 x 12 36 million n 4 years x 2 8 i 10 x 12 5 or 005 PVA 5 n8 1 1 1 i n i 1 1 105 8 005 646321 PV 5 n8 1 105 8 067684 Present value of the bonds 3600000 x 646321 90000000 x 067684 23267556 60915600 84183156 2a For Cromwell Semiannual    See Answer
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