Barnett Industries, Inc., issued $600,000 of 8% bonds on January 1, 2019. The bonds pay interest semiannually on July 1 and January 1. The maturity date on these bonds is December 31, 2028. The firm uses the effective interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 9%. Barnett incurred legal and investment banking fees of $22,000 in issuing the bonds and amortizes these costs annually on a straight-line basis.Required:1.Calculate the selling price of the bonds.2.Prepare journal entries for the issuance of the bonds and debt issuance costs.You should determine the selling price by using the effective rate to determine the present value of both the future principal and periodic interest payments. When interest is paid semiannually, you should divide the effective rate by the interest periods per year to determine the effective rate per semiannual period. You should also express the time to maturity in semiannual periods. You should use the same number of interest periods for both principal and interest calculations.

Step 1: Calculate the selling price of the bonds. We can use the present value (PV) formula to…

Answered: Barnett Industries, Inc., issued…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 1RE

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Barnett Industries, Inc., issued $600,000 of 8% bonds on January 1, 2019. The bonds pay interest semiannually on July 1 and January 1. The maturity date on these bonds is December 31, 2028. The firm uses the effective interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 9%. Barnett incurred legal and investment banking fees of $22,000 in issuing the bonds and amortizes these costs annually on a straight-line basis.

Required:

1.	Calculate the selling price of the bonds.
2.	Prepare journal entries for the issuance of the bonds and debt issuance costs.

You should determine the selling price by using the effective rate to determine the present value of both the future principal and periodic interest payments. When interest is paid semiannually, you should divide the effective rate by the interest periods per year to determine the effective rate per semiannual period. You should also express the time to maturity in semiannual periods. You should use the same number of interest periods for both principal and interest calculations.

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