# Comprehensive Bond Problem

Please explain how you get answers and don't use PV in Excel. Attached also are PV tables.

2. Bell Company sells $2,400,000 of 6% bonds on June 1, 2010. The

bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds

yield 5% On October 1, 2011, Douglas Company buys back $720,000

worth of the bonds for $738,000 (includes accrued interest). Give the entries through

December 31, 2012.

Jun 1, 10 Cash Amount

Bonds Payable 2,400,000

Premium on Bonds Payable Amount

Maturity value of bonds payable $2,400,000

Present value of $2,400,000 due in 8 periods at 2.5% Formula

Present value of interest payable semiannually Formula

Proceeds from sale of bonds Formula

Premium on bonds payable Formula

Dec 1, 10 Interest Expense Amount

Account Title Amount

Cash [$2,400,000 * 6.00% * (6/12)] 72,000

Note: Amortization table is semi-annual, interest rate is stated as annual value.

Dec 31, 10 Account title Amount

Account title Amount

Account title Amount

Jun 1, 11 Account Title Amount

Account Title Amount

Account Title Amount

Account Title 21,600

Oct 1, 11 Account title Amount

Account title Amount

Account title Amount

Oct 1, 11 Account title Amount

Account title Amount

Account title Amount

Account title Amount

Net carrying amount of bonds redeemed - Par value 720,000

Unamortized premium Amount

Formula

Reacquisition price Amount

Gain on redemption Formula

Dec 1, 11 Account title Amount

Account title Amount

Account title Amount

Dec 31, 11 Account title Amount

Account title Amount

Account title Amount

Jun 1, 12 Account title Amount

Account title Amount

Account title Amount

Account title Amount

Dec 1, 12 Account Amount

Account Amount

Account Amount

Schedule of Bond Discount Amortization

Effective Interest Method

6% Bonds Sold to Yield 5%

Date "Cash

Paid" "Interest

Expense" "Bond

Premium" "Carrying

Value

of Bonds"

Jun 1, 10 Amount

Dec 1, 10 Formula Formula Formula Formula

Jun 1, 11 Formula Formula Formula Formula

Dec 1, 11 Formula Formula Formula Formula

Jun 1, 12 Formula Formula Formula Formula

Dec 1, 12 Formula Formula Formula Formula

Jun 1, 13 Formula Formula Formula Formula

Dec 1, 13 Formula Formula Formula Formula

Jun 1, 14 Formula Formula Formula Formula.

https://brainmass.com/business/bond-valuation/comprehensive-bond-problem-436911

#### Solution Preview

Please see the attached file for the complete tutorial.

NOTE: To look at how each figure was computed, click on that cell to view the computation in the formula bar.

2. Bell Company sells $2,400,000 of 6% bonds on June 1, 2010. The

bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds

yield 5% On October 1, 2011, Douglas Company buys back $720,000

worth of the bonds for $738,000 (includes accrued interest). Give the entries through

December 31, 2012.

Jun 1, 10 Cash 2,486,042

Bonds Payable 2,400,000

Premium on Bonds Payable 86,042

Maturity value of bonds payable $2,400,000

Present value of ...

#### Solution Summary

The solution explains the comprehensive bond problem and provides an answer.

P14-2 Issuance and Retirement of Bonds Venezuela P14-5 Comprehensive Bond Problem Sanford Co., Effective Interest Method.

P14-2 (Issuance and Retirement of Bonds) Venezuela Co. is building a new hockey arena at the cost of 2,000,000.It received a down payment of 500,000 from local businesses to support the project,and now needs to borrow 2,000,000 to complete the project.It therefore decided to issue 2,000,000 of 10.5%,10 year bonds. These bonds were issue om Jan 1,2011 and pay interest annually on each Jan 1.The bonds yield 10% Venezula paid 50,000 in bond issue cost related to the bond sale.

INSTRUCTION

(a) Prepare a journal entry to record the issuance of the bond and the related bond issue cost incurred on Jan 1,2012.

(b) Prepare a bond amortization schedule up to and including Jan 1 2015,using the effective interest method.

(c) Assume that on July 1,2014 ,Venezula Co. retires half of the bonds at a cost of 1,065,000 plus accrued interest .Prepare the journal entry to record this retirement.

P14-5(Comprehensive Bond Problem) In each of the following independent cases the company closes its books om Dec 31.

1. Sanford Co. sells 500,000 of 10% bonds on Mar 1,2012.The bonds pay interest on Sept 1 and Mar 1.The due date of the bonds id Sept 1,2015.The bonds yield 12%.Give entries Through December 31,2013.

2.Titania Co. sells 400,000 of 12% bonds on Jun 1,2012. The bonds pay interest on Dec 1 and Jun 1.The due date of the bonds is Jun 1,2016.The bonds yield 10% .On Oct 1,2013 ,titania buys back 120,000 worth of bonds for 126,000 (includes accrued interest).Give entries through Dec 1,2014

INSTRUCTION

For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated.Use the effective interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest date and at a year -end.(Assume that no reversing entries were made.)