On September 30, 2015, Evan Tube Inc. issued $2,600,000 of 8% bonds plus accrued interest. Interest is payable semiannually on January 1 and July 1 with the bonds maturing July 1, 2025. The market rate of interest at the time of issuance was 10% and Evan uses the effective-interest method to amortize any premium or discount. Legal and other costs of $20,000 were incurred in connection with the issue and are being amortized on a straight-line basis over the life of the bond.
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Periods |
PV of a Single Sum 10% |
PV of an Annuity at 10% |
PV of a Single Sum 8% |
PV of an Annuity at 8% |
PV of a Single Sum 5% |
PV of an Annuity at 5% |
PV of a Single Sum 4% |
PV of an Annuity at 4% |
|
10 |
0.38554 |
6.14457 |
0.46319 |
6.71008 |
0.61391 |
7.72173 |
0.67556 |
8.11090 |
|
20 |
0.14864 |
8.51356 |
0.21455 |
9.81815 |
0.37689 |
12.46221 |
0.45639 |
13.59033 |
(1)What is the present value of the $2,600,000 bonds on September 30, 2015? Show all supporting calculations.
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(2)Prepare the relevant bond amortization table through January 1, 2017:
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(3)Prepare the relevant journal entries for the bonds on the following dates :
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September 30, 2015
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December 31, 2015
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January 1, 2016
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July 1, 2016
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(4)On December 31, 2016, Evan called $1,300,000 of the bonds at 101.5 in accordance with the provisions of the bond indenture and retired them. What is the gain or loss on the transaction? Show all relevant calculations.
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(5)Prepare all the necessary journal entries for December 31, 2016.
