Purchase Solution

# Issuance and Amoritization of Bonds

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RST Company sold \$9 million of four-year, 8% debentures on July 1, 2007. The bonds sold to yield a real rate of 7%. Interest is paid annually on June 30.
A. Determine the price of the bonds.
B. Prepare an amoritization schedule for the bonds.
C. Record the entry to the accounting system that is necessary to recognize interest on the bonds at June 30, 2008.
D. Assume the bonds had been sold to yield a real rate of 9%. At what price would they have been sold?

Thank you.

##### Solution Summary

The solution explains various calculations relating to issuance and amortization of bonds.

##### Solution Preview

RST Company sold \$9 million of four-year, 8% debentures on July 1, 2007. The bonds sold to yield a real rate of 7%. Interest is paid annually on June 30.
A. Determine the price of the bonds.

The price of the bonds is the present value of interest and principal. The interest amount is 9,000,000X8%=720,000. The principal amount is 9,000,000. The interest amount is an annuity and we use the PVIFA table to get the PV factor. For principal amount we use the PVIF table as it is a single sum. The time period is 4 years and ...

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