Cash Flow and Journal Entry

Exercises E14-2, E14-3, E14-5, E14-18

E 14–2: Determine the price of bonds in various situations LO14–2
Determine the price of a $1 million bond issue under each of the following independent assumptions:

1. Interest for 100,000 @ 5.65022 is $565,022
Principle 1M @ 0.32197 is 321,970
PV would be 886,992

2. Interest for 50,000 @ 11.46992 is $573,496
Principle 1M @ 0.31180 is 311,800
PV would be 885,296

3. Interest for 60,000 @ 12.46221 is $747,733
Principle 1M @ 0.37689 is 376,890
PV would be 1,124,623

4. Interest for 60,000 17.15909 is $1,029,545
Principle 1M @ 0.14205 is 142,050
PV would be 886,992

5. Interest for 60,000 @ 15.0463 is $902,778
Principle 1M @ 0.9722 is 97,220
PV would be 999,998

E 14–3: Determine the price of bonds; issuance; effective interest LO14–2
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2013. The bonds mature on December 31, 2022 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31.
Required:
• 1. Determine the price of the bonds at January 1, 2013.
• 2. Prepare the journal entry to record their issuance by The Bradford Company on January 1, 2013
• 3. Prepare the journal entry to record interest on June 30, 2013 (at the effective rate).
• 4. Prepare the journal entry to record interest on December 31, 2013 (at the effective rate).

1. Interest for 4M @ 11,46992 is $45,879,680
Principle 80M @ 0.31180 is 24,944,000
PV would be 70,823,680

2. Cash is 70,823,680
Discount is 9,176,320
Bonds Payable is 80M

3.. Interest for 70,823,680 @ 6 is $4,249,421
Discount is 249,421
Cash is 4M

4. Interest for 71,073,101 @ 6 is $4,264,386
Discount is 264,386
Cash is 4M

E 14–5: Bonds; issuance; effective interest; financial statement effects LO14–2
Myriad Solutions, Inc., issued 10% bonds, dated January 1, with a