Johns Co. is issuing $7.5 million 12% bonds in a private placement on July 1, 2014. Each $1,000 bond pays interest semi-annually on December 31 and June 30 of each year. The bonds mature in ten years. At the time of issuance, the market interest rate for similar types of bonds was 8%.
a. What is the expected selling price of the bonds?
b. Prepare the journal entry that Johns Co. will make when the bonds are issued.
c. The bond indenture agreement requires that Johns Co. deposit money in a bond sinking fund semi annually beginning on the first interest payment date. The controller estimates that the annual rate of interest earned on the investments in the sinking fund will be 8%. What amount must be deposited annually in order to have enough money in the fund to pay off the bonds in 10 years?
d. Prepare an amortization schedule to prove that your answer in d is correct. Cut and paste the schedule below. PLACE YOUR AMORTIZATION SCHEDULE AT THE END OF THE QUIZ.
e. Prepare the entry that will be made each year to record the payment to the sinking fund.Question 2:
On 1/1/14, Bet Company sold goods costing $120,000 to C Company. C company signed a non-interest bearing note requiring payment of $40,000 annually for 8 years. The first payment was made on 1/1/14. The prevailing rate of interest for this type of note at the date of issuance was 8%. Prepare the entry to record the transaction on both Bet and C's books. Bet uses a perpetual inventory system.
How much must be invested on 1/1/13 to receive $20,000 for ten years if the first payment is to be taken on January 1st, 2024? Assume an annual interest rate of 6%?
-Prepare a quick amortization schedule to prove that your answer is correct.