QuestionQuestion

On June 30, 2014, Wayne Inc. sold $200,000 (face value) of bonds. The bonds are dated June 30, 2014, pay interest semiannually on December 31 and June 30, and will mature on June 30, 2018.The following schedule was started by the accountant for 2014 and you are required to first fill in the June 30th row of numbers and then answer the questions under the amortization table.

Semi-Annual      Interest to    Interest                            Unamortized         Bond
Interest Period      be Paid    Expense   Amortization    Balance               Carrying Value
June 30,2014                                                                     23,740                223,740
1 Dec 31,2014         12,000       10,070         1,930               21,810                221,810
this is rounded up a bit to come out even

2 June 30, 2015

Instructions: On the basis of the above information, answer the following questions. When you compute the interest rates, round all percentages to 3 decimal places. For example, if you get a .0550610, round it to .055 which is 5.5% every 6 months,or 11% for an annual interest rate.

1. Prepare the journal entry to record the sale of the bond issue on June 30, 2014.
2. Prepare the journal entry to record the payment of interest and amortization on December 31, 2014.
3. What was the selling price of the bonds as a percentage of the face value? _______%.
4. What is the stated interest rate for this bond issue? _______% How did you find this number?
5. What is the market interest rate for this bond issue? _______% How did you find this number?
6. What is the total cost of borrowing over the life of the bond? $__________________ How did you find this number?
7. Fill in the missing numbers for the second interest period on the amortization table above.
8. How will the bonds be listed on the Balance Sheet on December 31, 2014? LONG TERM LIABILITIES
9. What is the carrying value of the bonds at the maturity date? $____________

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