On January 1, 2018, Instaform, Inc., issued 10% bonds with a face amount of $58 million,...

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On January 1, 2018, Instaform, Inc., issued 10% bonds with aface amount of $58 million, dated January 1. The bonds mature in2037 (20 years). The market yield for bonds of similar risk andmaturity is 12%. Interest is paid semiannually.

Required:
1-a. Determine the price of the bonds at January 1,2018.
1-b. Prepare the journal entry to record theirissuance by Instaform.
2-a. Assume the market rate was 9%. Determine theprice of the bonds at January 1, 2018.
2-b. Assume the market rate was 9%. Prepare thejournal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased theentire issue in a private placement of the bonds. Using the data inrequirement 2, prepare the journal entry to record the purchase byBroadcourt.

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3.8 Ratings (578 Votes)

1-a. Determine the price of the bonds at January 1, 2018.

Semiannual cash interest	10% x 58,000,000 x 6/12
	2900000
Present value of interest
payments @ 6%	15.0463*2900000	43634270
Present value of $58,000,000	0.09722 x 58,000,000	5638760
Price of bonds		49273030

General Journal	Debit	Credit
Cash	49273030
Discount on Bonds payable	8,726,970
Bonds payable		58,000,000


2
Semiannual cash interest:	10% x 58,000,000 x 6/12
	2900000
Present value of interest
payments @ 4.5%	18.40158*2900000	53364582
Present value of $58,000,000	0.17193*58000000	9971940
Price of bonds		63336522

General Journal	Debit	Credit
Cash	63336522
Primium on Bonds payable		5,336,522
Bonds payable		58,000,000

3
Semiannual cash interest:	10% x 58,000,000 x 6/12
	2900000
Present value of interest
payments @ 4.5%	18.40158*2900000	53364582
Present value of $58,000,000	0.17193*58000000	9971940
Price of bonds		63336522

General Journal	Debit	Credit
Investment in bonds	58,000,000
Primium on Bonds payable	5,336,522
Bonds payable		63336522

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On January 1, 2018, Instaform, Inc., issued 10% bonds with aface amount of $58 million, dated January 1. The bonds mature in2037 (20 years). The market yield for bonds of similar risk andmaturity is 12%. Interest is paid semiannually.Required:1-a. Determine the price of the bonds at January 1,2018.1-b. Prepare the journal entry to record theirissuance by Instaform.2-a. Assume the market rate was 9%. Determine theprice of the bonds at January 1, 2018.2-b. Assume the market rate was 9%. Prepare thejournal entry to record their issuance by Instaform.3. Assume Broadcourt Electronics purchased theentire issue in a private placement of the bonds. Using the data inrequirement 2, prepare the journal entry to record the purchase byBroadcourt.