n January 1, 2021, Bradley Recreational Products issued $150,000, 9%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $145,153 to yield an annual return of 10%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare an amortization schedule that determines interest at the effective interest rate. 2. Prepare an amortization schedule by the straight-line method. 3. Prepare the journal entries to record interest expense on June 30, 2023, by each of the two approaches. 5. Assuming the market rate is still 10%, what price would a second investor pay the first investor on June 30, 2023, for $15,000 of the bonds

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jepessoa jepessoa · Answer 1 · 2020-09-14T03:12:15+02:00

Answer:

I prepared an excel spreadsheet for questions 1 and 2 because there is not enough room here.

3) June 30, 2023, fifth coupon payment (under effective interest rate)

Dr Interest expense 7,367

Cr Cash 6,750

Cr Discount on bonds payable 617

June 30, 2023, fifth coupon payment (under straight-line method)

Dr Interest expense 7,356

Cr Cash 6,750

Cr Discount on bonds payable 606

5) we can use the approximate yield to maturity formula in order to determine the market value of a $1,000 bond on June 30, 3023:

0.1 = {45 + [(1,000 - MV)/3]} / [(1,000 + MV)/2]

0.1 x [(1,000 + MV)/2] = 45 + 333.33 - 0.333MV

50 + 0.05MV = 378.33 - 0.333MV

0.383MV = 328.33

MV = 328.33 / 0.383 = $857.26

if the investor is willing to purchase $15,000 of the bonds, then the purchase price = 15 x $857.26 = $12,858.90 ≈ $12,858.90

Explanation:

the journal entry to record the issuance of the bonds:

Dr Cash 145,153

Dr Discount on bonds payable 4,847

Cr Bonds payable 150,000