Copyright

On January 1, 2016, Bradley Recreational Products issued $100,000, 13%, four-year bonds. Interest...

Question:

On January 1, 2016, Bradley Recreational Products issued $100,000, 13%, four-year bonds.

Interest is paid semi-annually on June 30 and December 31.

The bonds were issued at $97,014 to yield an annual return of 14%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1 ) (Use appropriate factor(s) from the tables provided.)

1. Prepare an amortization schedule that determines interest at the effective interest rate.

2. Prepare an amortization schedule by the straight-line method.

3. Prepare the journal entries to record interest expense on June 30, 2018, by each of the two approaches.

(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

a.) Record interest expense on June 30, 2018, by the effective interest method.

b.) Record interest expense on June 30, 2018, by the straight-line method.

3. Assuming the market rate is still 14%, what price would a second investor pay the first investor on June 30, 2018, for $14,000 of the bonds?

Bonds:

Bonds are similar to traditional bank interest-only financing in that the bonds pay interest at periodic times. with principal due at maturity. Bonds are obtained from investors to assist with capital outlay projects

Answer and Explanation:


Bonds are issued at a discount when the interest rate offered on the bonds is lower than the rate a typical investor can receive in the open market....

See full answer below.

Become a Study.com member to unlock this answer! Create your account

View this answer

Learn more about this topic:

Loading...
Bonds: Types, Characteristics and Issuing Procedures

from Accounting 101: Financial Accounting

Chapter 10 / Lesson 7
14K

Related to this Question

Explore our homework questions and answers library