PR 14-2A On July 1, 2010, Borrower Industries Inc.

issued $32,000,000 of 10-year, 12% bonds at an effective interest

30. The fiscal year of the company is calendar year. Instructions: 1.Journalize the entry to record the amount of cash p
payment on December 31, 2010, and the amortization of the bond discount, using the straight-line method. (Round to
straight-line method. (Round to the nearest dollar) 3.Determine the total interest expense for 2010. 4.Will the bond
interest? 5.(Appendix 1) Compute the price of $30,237,139 received for the bonds by using the tables of present valu
0.88496. Let me know if this is the right number ***Note: Please h

Journal entries:
S.no.
1)

Date

2) a

2010Dec.31

2) b

2011June 30

3)

Calculation of Interest expenses:

Interest payable = 32,000,000 x 12% x 1/2 = 1,920,000
Add Discount on bonds payable (1,762,861/ 20) = 88,143
Interest expense for 6 months period = 2,008,143

4)

Will the bond proceeds always be less than the face amount of the bonds when the contr
Yes, the bond proceeds will always be less than the face value of bonds when the coupon
The reason for this is investors compare the interest rate offered on the bonds with the p
on the bonds, they are interested to invest in other bonds in the market. To attract the inv
Thus, when the coupon rate is less than the market rate, bonds will always be sold at a d

2010 July 1

5)

Calculation of bond price using table values:

Present value of bonds = Face value of bonds x present value of $1 for 20 periods + Inter

(For table values check the link given here. Table values are rounded after five digits afte

www.exinfm.com/excel%20files/pv_fv.rtf

010, Borrower Industries Inc. issued $32,000,000 of 10-year, 12% bonds at an effective interest rate of 13% receiving cash of $30,
the company is calendar year. Instructions: 1.Journalize the entry to record the amount of cash proceeds from the scale of the bond
er 31, 2010, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar) b. The interest
d. (Round to the nearest dollar) 3.Determine the total interest expense for 2010. 4.Will the bond proceeds always be less than the
x 1) Compute the price of $30,237,139 received for the bonds by using the tables of present value in Appendix A at end of text. (Ro
0.88496. Let me know if this is the right number ***Note: Please help me with this project and put it

Account/ Description
Cash
Discount on Bonds Payable
Bonds Payable

Debit
30,237,139
1,762,861

Interest Expense
Discount on Bonds Payable (1,762,861/ 20)
Cash

2,008,143

Interest Expense*($30,237,139 + $45,414) 6.5%

Discount on Bonds Payable
Cash

2,008,143

on of Interest expenses:
payable = 32,000,000 x 12% x 1/2 = 1,920,000
ount on bonds payable (1,762,861/ 20) = 88,143
expense for 6 months period = 2,008,143

bond proceeds always be less than the face amount of the bonds when the contract rate is less than the mar
bond proceeds will always be less than the face value of bonds when the coupon rate is less than the market
on for this is investors compare the interest rate offered on the bonds with the prevailing market rate and if t
onds, they are interested to invest in other bonds in the market. To attract the investors the bonds are offered
en the coupon rate is less than the market rate, bonds will always be sold at a discounted value.

on of bond price using table values:

value of bonds = Face value of bonds x present value of $1 for 20 periods + Interest payment x present value
= 32,000,000 x 0.28380 + 1,920,000 x 11.01851
= 30,237,139
e values check the link given here. Table values are rounded after five digits after decimal)

infm.com/excel%20files/pv_fv.rtf

rate of 13% receiving cash of $30,237,139. Interest on the bonds is payable semiannually on December 31 and June
proceeds from the scale of the bonds. 2.Journalize the entries to record the following: a. The first semiannual interest
o the nearest dollar) b. The interest payment on June 30, 2011, and the amortization of the bond discount, using the
d proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of
ue in Appendix A at end of text. (Round to the nearest dollar) For 12% number 1 period, it is 0.89286. For 13% it is
help me with this project and put it together in Excel Spreadsheet.

Credit

32,000,000
88,143
1,920,000
88,143
1,920,000

ract rate is less than the market rate of interest?

n rate is less than the market rate.
prevailing market rate and if the market rate is higher than the coupon rate
nvestors the bonds are offered at a discount.
discounted value.

rest payment x present value of an annuity for 20 periods

er decimal)