Question 1 - On January 1, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:
Present value of 1 for 10 periods at 10% .386
Present value of 1 for 10 periods at 12% .322
Present value of 1 for 20 periods at 5% .377
Present value of 1 for 20 periods at 6% .312
Present value of annuity for 10 periods at 10% 6.145
Present value of annuity for 10 periods at 12% 5.650
Present value of annuity for 20 periods at 5% 12.462
Present value of annuity for 20 periods at 6% 11.470
Instructions:
Calculate (a) the present value of future interest payments, (b) the present value of the future value, and (c) the issue price of the bonds. Be sure to show your work.
Question 2 - Prepare journal entries to record the following independent events. Be sure to include the accrual of interest and the payment of interest entries (Show computations and round to the nearest dollar).
a) On January 1, 2012, ABC Company issued $500,000 of 10%, 20-year bonds at par. The interest is payable semiannually on June 30 and December 31.
b) On April 30, 2012, XYZ Company issued $100,000 of 12%, 20-year bonds at par plus accrued interest. Interest is payable semiannually on June 30 and December, 31.