Determining the price of bonds; discount and premium; issuer and investor
Response to the following problem:
On January 1, 2016, Instaform, Inc., issued 10% bonds with a face amount of $50 million, dated January 1. The bonds mature in 2035 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually
Required:
1. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance by Instaform.
2. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.