Question 1 Bonds (23 marks) Terra Company issued a $300,000, 7.50%, 10-year bond on June 1, 2015. Additional information on the bond follows: Bond Date: January 1, 2015 December 31, 2024 Maturity Date: Yield (Market) Rate: Interest Payment Date: Terra's year end: Required: Round calculations to the nearest dollar a) Calculate the present value of the bond assuming that it had been issued on January 1, 2015. Show calculations/keystrokes. (1 mark) 8% Interest is paid annually on December 31 of each year September 30 b) Prepare a bond amortization table from January 1, 2015 until December 31, 2018. Show each annual interest payment. (3 marks) c) Calculate the total amount of cash received by Terra on June 1, 2015, reflecting the fact the bond was issued on June 1, 2015. Make the journal entry to record the bond issue on June 1, 2015. (4 marks) d) Prepare the adjusting entry required at Terra's year end, Sept 30, 2017. (2 marks) e) Prepare the journal entry on Terra's books to make the December 31, 2017 interest payment to its investors. (2 marks) f) On July 1, 2018, Terra Company decides to retire 20% of the bonds at 98 plus accrued interest. (i) Make the entry to record interest up to July 1 including interest payable (interest will be paid when the bond is retired in part (ii) below) (3 marks) (ii) Make the entry to retire the bonds. (5 marks) g) Make the entry on Terra's books on December 31, 2018 to pay out interest to the remaining bondholders. (3 marks)
Question 1 Bonds (23 marks) Terra Company issued a $300,000, 7.50%, 10-year bond on June 1, 2015. Additional information on the bond follows: Bond Date: January 1, 2015 December 31, 2024 Maturity Date: Yield (Market) Rate: Interest Payment Date: Terra's year end: Required: Round calculations to the nearest dollar a) Calculate the present value of the bond assuming that it had been issued on January 1, 2015. Show calculations/keystrokes. (1 mark) 8% Interest is paid annually on December 31 of each year September 30 b) Prepare a bond amortization table from January 1, 2015 until December 31, 2018. Show each annual interest payment. (3 marks) c) Calculate the total amount of cash received by Terra on June 1, 2015, reflecting the fact the bond was issued on June 1, 2015. Make the journal entry to record the bond issue on June 1, 2015. (4 marks) d) Prepare the adjusting entry required at Terra's year end, Sept 30, 2017. (2 marks) e) Prepare the journal entry on Terra's books to make the December 31, 2017 interest payment to its investors. (2 marks) f) On July 1, 2018, Terra Company decides to retire 20% of the bonds at 98 plus accrued interest. (i) Make the entry to record interest up to July 1 including interest payable (interest will be paid when the bond is retired in part (ii) below) (3 marks) (ii) Make the entry to retire the bonds. (5 marks) g) Make the entry on Terra's books on December 31, 2018 to pay out interest to the remaining bondholders. (3 marks)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 1 Bonds (23 marks)
Terra Company issued a $300,000, 7.50%, 10-year bond on June 1, 2015. Additional information on
the bond follows:
Bond Date:
January 1, 2015
December 31, 2024
Maturity Date:
Yield (Market) Rate:
Interest Payment Date:
Terra's year end:
Required: Round calculations to the nearest dollar
a) Calculate the present value of the bond assuming that it had been issued on January 1, 2015. Show
calculations/keystrokes. (1 mark)
8%
Interest is paid annually on December 31 of each year
September 30
b) Prepare a bond amortization table from January 1, 2015 until December 31, 2018. Show each
annual interest payment. (3 marks)
c) Calculate the total amount of cash received by Terra on June 1, 2015, reflecting the fact the bond
was issued on June 1, 2015. Make the journal entry to record the bond issue on June 1, 2015. (4
marks)
d) Prepare the adjusting entry required at Terra's year end, Sept 30, 2017. (2 marks)
e) Prepare the journal entry on Terra's books to make the December 31, 2017 interest payment to
its investors. (2 marks)
f) On July 1, 2018, Terra Company decides to retire 20% of the bonds at 98 plus accrued interest.
(i) Make the entry to record interest up to July 1 including interest payable (interest will be paid
when the bond is retired in part (ii) below) (3 marks)
(ii) Make the entry to retire the bonds. (5 marks)
g) Make the entry on Terra's books on December 31, 2018 to pay out interest to the remaining
bondholders. (3 marks)
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