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when patey pontoons issued 10% bonds on january 1, 2024, with a face amount of $720,000, the market yield for bonds of similar risk and maturity was 11%. the bonds mature december 31, 2027 (4 years). interest is paid semiannually on june 30 and december 31. required: determine the price of the bonds at january 1, 2024. prepare the journal entry to record their issuance by patey on january 1, 2024. prepare an amortization schedule that determines interest at the effective rate each period. prepare the journal entry to record interest on june 30, 2024. what is the amount related to the bonds that patey will report in its balance sheet at december 31, 2024? what is the amount related to the bonds that patey will report in its income statement for the year ended december 31, 2024? (ignore income taxes.) prepare the appropriate journal entries at maturity on december 31, 2027.

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QWpurple

1) The cost of the bonds is 697197 as of January 1, 2024.

2) the journal entry to reflect Patey issuing them on January 1st, 2024

Dr. Cash A/c 697197

To Bond Payable Account 22803 Discount

Bonds payable at Account Number 720000

3) In the amortization schedule, interest costs are computed using the carrying value of the bond and the semi-annual market rate of interest.

4) the entry to be made in the journal on June 30, 2024, for interest:

Dr. 38346: Interest Expense

To Discount on Bond Payable A/c 2346 To Cash 36000

5) According to Patey's financial sheet as of December 31, 2024, the amount associated with the bonds is 702017.

6) Patey will report $76,821 in bond-related expenses on its income statement for the fiscal year that ends on December 31, 2024.

7) the required journal entries on December 31, 2027, maturity:

31-Dec-27 Interest Cost Account Number 39411

To Cash Account 36000 From Discount on Bond Payable A/C 3411

31-Dec-27

Bond Payable A/c Dr 720000 To Cash A/c 720000

1) Bond prices as of January 1, 2024, are as follows:

Values in the chart are based on:    

n= (4 * 2) = 8 years                         Half years

i= (11% / 2) = 5.50%                        Semi-annual

Cash Flow              Table Value * Amount   = Present Value

Principal                        0.65160         *  720000   =    469152

Interest (Annuity)

[$720,000*10%*6/12] 6.33457       *            36000   = 228045

Price of Bonds                                                           697197

Bond prices are determined by the present values of the principal and interest.

2) The following is the journal entry to reflect the bond issuance:

01-Jan-24 Cash A/c Dr 697197

                             To Discount on Bond Payable A/c     22803

                             To bonds payable A/c                   720000

                      (Being a discount-priced bond)

3)                            Bond Amortization Schedule

Date     Cash        Interest     Discount            Unamortized   Carrying

                   Interest    Expense    Amortization       Discount           Value

01-Jan-24                                     22803         697197

30-Jun-24   36000     38346 2346          20458         699542

31-Dec-24   36000     38475         2475           17983         702017

30-Jun-25   36000     38611          2611                  15372            704628

31-Dec-25   36000     38755 2755           12617         707383

30-Jun-26   36000     38906 2906             9711         710289

31-Dec-26   36000     39066 3066                  6645            713355

30-Jun-27   36000     39235 3235                    3411             716589

31-Dec-27   36000       39411         3411                        0            720000

Interest costs are calculated using the bond's carrying value and the semi-annual market rate of interest.

4)   30-Jun-24 Interest Expense Dr 38346

                                    To Discount on bond payable A/c       2346

                                    To Cash                                      36000

                                   (To register Interest as of June 30, 2024)

5) As per the Bond Amortization Schedule, Bonds reported on December 31, 2024, are equal to 702017.

6) The total of the year's recognized semi-annual interest expenses is the amount of interest expense to be shown on the income statement.

amount pertaining to the bonds that Patey will disclose on its income statement for the fiscal year ending December 31, 2024 = 38346 + 38475

Therefore, the Interest Expense to be reported in the  Income Statement will amount to $76,821

7) At maturity, appropriate journal entries are prepared as follows:

31-Dec-27   Interest Expense A/c Dr 39411

                              To Discount on bond payable A/c 3411

                               To Cash A/c                              36000

31-Dec-27 Bond Payable A/c  Dr 720000

                              To Cash A/c                             720000

         (Both interest costs and principal payments are made at maturity.)

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