Bond Valuation

valuation.xlsx

on january 1 2014 united ten inc “UTI” issues $5,000,000 of bonds with an interest rate of 6%. The term of the bonds is 8 years and interest is paid Semi Annually. The annual market rate of interest is 8%.

Determine the bond proceeds on January 1 2014 $_________________

Was the bond issued at a premium or discount or at par value?___________________

If applicable, what was the amount of the premium or discount?________________

Prepare the Journal Entry, in proper form, to reflect the issuance of the bond on January 1 2014.

 

DATE_____________

DESCRIPTION_________________

DEBIT____________________________

CREDIT_____________________

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2

3

Calculation

A

vailable information

Coupon Rate

6

.

00%

Interest payable semiannual Yield to Maturity 8

.00%

Maturity period

8
Face Value

$

5

,000,000.00
Go to the

answer

answer

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Calculation

Available information Coupon Rate

6.00%

Interest payable semiannual

Yield to Maturity

8.00%

Maturity period 8

Face Value

$5,000,000.00 Proceeds from bond issue = (Semiannual Intt)*(PVIFAR%,16) + (Maturity sum)*(PVIFR%,16) So, Proceeds from bond issue =

$

4

,41

7

,385.22

Answers to Questions 1

Determine the bond proceeds on January 1 2014 $4,417,385.22 2

Was the bond issued at a premium or discount or at par value? Discount 3

If applicable, what was the amount of the premium or discount? $582,614.78

Discount
4

Prepare the Journal Entry, in proper form, to reflect the issuance of the bond on January 1 2014. DATE DESCRIPTION

DE

B

IT

CREDIT 1/1/14 Cash A/c

$4,417,385.22
Discount on

Bonds Payable

$582,614.78
Bonds Payable $5,000,000.00

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