Problem - Yummy Food Limited, whose fiscal-year ends on December 31, issued a 10-year, 7%, $30,000 bond on January 1, Year 1. The bond pays interest once a year on December 31 annually, with the principal to be paid at the end of 10 years. The effective interest rate on the bond is 6%. The company uses effective-interest amortization for the bond.
|
Periods
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Present Value of $1
|
Present Value of Ordinary Annuity of $1
|
|
3%
|
6%
|
7%
|
3%
|
6%
|
7%
|
|
10
|
0.7441
|
0.5584
|
0.5083
|
8.5302
|
7.3601
|
7.0236
|
|
20
|
0.5537
|
0.3118
|
0.2584
|
14.8775
|
11.4699
|
10.5940
|
Required (all computations are rounded to the nearest dollar)
1) How much is the issuance price of the bond on January 1, Year 1?
2) Prepare journal entries for Yummy Food Ltd. on each of the following dates:
- January 1, Year 1
- December 31, Year 1
- December 31, Year 2
3) What is the balance sheet presentation of this bond for Yummy Food Ltd. on December 31, Year 2?