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Issue price of bonds and journal entries

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Minimus sold a 100,000 9% 3 year bond issue due on march 31 year 1 at a price yield to investors 10%. Interest rates are per annum compounded semi-annually. The bond interest is payable each september 30 and march 31, with the first payment due september 30 year 1. Premium or discount is amortized by straight line method. Year end is dec 31

Calculate the price the bond sold for
Prepare all year 1 journal entries, plus the journal entry needed march 31 year 2
show how the bond will be reported on dec 31 year 1

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Solution Summary

The solution explains how to calculate the issue price of bonds when market rate is different from coupon rate and the related journal entries.

Solution Preview

The answers are in the attached file.

Calculation of Bond Price

Period 31/03/01 30/09/01 31/03/02 30/09/02 31/03/03 30/09/03 31/03/04
Interest 4500 4500 4500 4500 4500 4500
Principal 100000
Total 4500 4500 4500 4500 4500 104500
Discount Rate 0.952 0.907 0.864 0.823 0.784 0.746
Dicounted Cash Flow 4,286 4,082 3,887 ...

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