PROBLEM 1

1) At face amount
Cash 1,000,000.00
Bonds Payable 1,000,000.00

2.) To yield 8% (at a premium)

Interest (1m x
Principal Discount PV of interest
10%)
1-Jan-25
31-Dec-25 100,000.00 0.9259 92,593
31-Dec-26 100,000.00 0.8573 85,734
31-Dec-27 1,000,000.00 100,000.00 0.7938 79,383
2.5771
PV of ordinary annuity
2.5771 (1-(1.08)^-3)/0.08

PV of principal (1m x .7938) 793,800.00

PV of interest (1m x 10% x 2.5571) 257,710.00
Present value (net issuance price or net proceeds) 1,051,510.00

Cash 1,051,510.00
Bonds Payable 1,000,000.00
Premium on Bonds Payable 51,510.00

3.) To yield 12% (at a discount)

Principal Interest (1m x 10%)Discount PV of interest
1-Jan-25
31-Dec-25 100,000.00 0.8929 89,286
31-Dec-26 100,000.00 0.7972 79,719
31-Dec-27 1,000,000.00 100,000.00 0.7118 71,178
2.4018

PV of principal (1m x 0.7118 ) 711,780.25

PV of interest (1m x 10% x 2.4018 ) 240,183.13
Present value (net issuance price or net proceeds) 951,963.37

Cash 951,963.37
Discount on Bonds Payable 48,036.63
Bonds Payable 1,000,000.00

4.) Quoted at 98
Cash (P1m x 98%) 980,000.00
Discount on Bonds Payable 20,000.00
Bonds Payable 1,000,000.00
PROBLEM 2
1) Bond issue price
PV of principal (1m x 0.6756 ) 675,600.00
PV of interest (1m x 5% x 8.1109 ) 405,545.00
Present value (net issuance price or net proceeds) 1,081,145.00

PV factor of 1 (1.04 ^-5) 0.6756

PV factor of ordinary annuity
(1-(1.04)^-10)/0.04 8.1109

2) Interest expense for 2025 and 2026

Interest Payment Interest Expense Premium
Date Carrying Value
(10% / 2)) (8% / 2)) Amortization
6/30/2025 1,081,145
12/31/2025 50,000.00 43,246 6,754.20 1,074,391
6/30/2026 50,000.00 42,976 7,024.37 1,067,366
12/31/2026 50,000.00 42,695 7,305.34 1,060,061
6/30/2027 50,000.00 42,402 7,597.56 1,052,464
12/31/2027 50,000.00 42,099 7,901.46 1,044,562
6/30/2028 50,000.00 41,782 8,217.52 1,036,345
12/31/2028 50,000.00 41,454 8,546.22 1,027,798
6/30/2029 50,000.00 41,112 8,888.07 1,018,910
12/31/2029 50,000.00 40,756 9,243.59 1,009,667
6/30/2030 50,000.00 40,387 9,613.33 1,000,053

Interest Expense for 2025 43,246

Interest Expense for 2026 (42,976 + 42,695) 85,670

CV 12/31/2025 1,074,391
CV 12/31/2026 1,060,061

Journal entries:
1. To record the issuance of the bonds on June 30, 2025:
Cash 1,081,145.00
Bonds Payable 1,000,000.00
Premium on bonds payable 81,145.00

2. To record the interest payment on December 31, 2025

Interest Expense 50,000.00
Cash 50,000.00

3. To record the premium amortization on December 31, 2025

Premium on Bonds Payable 6,754.20
 Interest Expense 6,754.20

Beginning Balance of Premium 81,145

Debit on 12/31/2025 -6,754
Ending balance of premium as of 12/31/202574,391

PROBLEM 3
1) Bond issue price
PV of principal (1m x 0.5584 ) 558,400
PV of interest (1m x 5% x 7.3601 ) 368,004
Present value (net issuance price or net proceeds) 926,404

PV factor of 1 (1.06 ^-5) 0.5584

PV factor of ordinary annuity
(1-(1.06)^-10)/0.06 7.3601

2) Interest expense for 2025 and 2026

Interest Payment Interest Expense Discount
Date Carrying Value
(10% / 2)) (12% / 2)) Amortization
6/30/2025 926,404
12/31/2025 50,000.00 55,584 5,584 931,988
6/30/2026 50,000.00 55,919 5,919 937,908
12/31/2026 50,000.00 56,274 6,274 944,182
6/30/2027 50,000.00 56,651 6,651 950,833
12/31/2027 50,000.00 57,050 7,050 957,883
6/30/2028 50,000.00 57,473 7,473 965,356
12/31/2028 50,000.00 57,921 7,921 973,277
6/30/2029 50,000.00 58,397 8,397 981,674
12/31/2029 50,000.00 58,900 8,900 990,574
6/30/2030 50,000.00 59,434 9,434 1,000,009

Interest Expense for 2025 55,584

Interest Expense for 2026 (55,919 + 56,274) 112,194

CV 12/31/2025 931,989
CV 12/31/2026 944,182

Journal entries:
1. To record the issuance of the bonds on June 30, 2025:
Cash 926,404.00
Discount on Bonds payable 73,596.00
Bonds Payable 1,000,000.00

2. To record the interest payment on December 31, 2025

 Interest Expense 50,000.00
Cash 50,000.00

3. To record the discount amortization on December 31, 2025

Interest Expense 5,584.24
Discount on Bonds Payable 5,584.24

Beginning Balance of discount 73,596

Credit on 12/31/2025 -5,584
Ending balance of discount as of 12/31/2025 68,011

PROBLEM 4
1) Issue price of the serial bonds
Principal Interest PV Factor of 1
1-Jan-25 6,000,000
31-Dec-25 (2,000,000) 360,000.00 0.9259
31-Dec-26 (2,000,000) 240,000.00 0.8573
31-Dec-27 (2,000,000) 120,000.00 0.7938
2.5771 PVF of OA

5,154,142.12
CV = Prev. Bal - PP + DA or - PA

PV of principal (2m x 2.5771 ) 5,154,200

PV of interest:
360k x 0.9259 333,324
240k x 0.8573 205,761
120k x 0.7938 95,260 634,332
Present value / issue price 5,788,532

Principal Interest Payment Interest Expense Discount

Date Carrying Value
Payment (6%) (8%) Amortization
1/1/2025 5,788,532
12/31/2025 2,000,000 360,000.00 463,083 103,083 3,891,615
12/31/2026 2,000,000 240,000.00 311,329 71,329 1,962,944
12/31/2027 2,000,000 120,000.00 157,035 37,035 -

Interest Expense for 2025 463,083

CV 12/31/2025 3,891,615

Total CV 3,891,615
Non-current Liabilities in 2026 1,962,944
Current Liabilities in 2026 1,928,671
PROBLEM 5
Total proceeds 1,000,000 x 98%) 980,000.00
Less: Accrued interest (1,000,000 x 12% x 2/12) -20,000.00
Proceeds applicable to the bonds (excluding accrued interest) 960,000.00

Cash 980,000.00
Disc. On BP (1m - 960k) 40,000.00
Bonds Payable 1,000,000.00
Interest Payable 20,000.00

PROBLEM 6
1) issued on January 1, 2025
PV factor of 1 (1.15 ^-5) 0.4972
PV factor of ordinary annuity
(1-(1.15)^-5)/0.15 3.3522

PV of principal (1m x 0.4972 ) 497,200

PV of interest (1m x 12% x 3.3522) 402,264
Present value (net issuance price or net proceeds) 899,464

2) issued on March 1, 2025

Interest Payment Interest Expense Discount
Date Carrying Value
(12%) (15%) Amortization
1/1/2025 899,464
1-Mar-25
12/31/2025 120,000.00 134,920 14,920 914,384
12/31/2026 120,000.00 137,158 17,158 931,541
12/31/2027 120,000.00 139,731 19,731 951,272
12/31/2028 120,000.00 142,691 22,691 973,963
12/31/2029 120,000.00 146,094 26,094 1,000,058

Interest Payment Interest Expense Discount

Date Carrying Value
(12%) (15%) Amortization
1/1/2025 899,464
3/1/2025 20,000.00 22,487 2,487 901,951

Proceeds applicable to the bonds 901,951

Add: Accrued Interest (1m x 12% x 2/12) 20,000.00
Total proceeds 921,950.60

Problem 7
 1) On January 1, 2025 at face amount
Carrying amount 1,074,390.80
Less: Retirement price 1,000,000.00
Gain (loss) 74,390.80

Interest
Interest Expense Premium
Date Payment Carrying Value
(8% / 2)) Amortization
(10% / 2))
6/30/2024 1,081,145 < See problem 2
12/31/2024 50,000.00 43,246 6,754 1,074,391
6/30/2025 50,000.00 42,976 7,024 1,067,366
12/31/2025 50,000.00 42,695 7,305 1,060,061
6/30/2026 50,000.00 42,402 7,598 1,052,464
12/31/2026 50,000.00 42,099 7,901 1,044,562
6/30/2027 50,000.00 41,782 8,218 1,036,345
12/31/2027 50,000.00 41,454 8,546 1,027,798
6/30/2028 50,000.00 41,112 8,888 1,018,910
12/31/2028 50,000.00 40,756 9,244 1,009,667
6/30/2029 50,000.00 40,387 9,613 1,000,053

2) On April 1, 2027 at 105

Interest
Interest Expense Premium
Payment Carrying Value
(8% / 2)) Amortization
(10% / 2))
12/31/2026 50,000.00 42,099 7,901 1,044,562
4/1/2027 25,000.00 20,891 4,109 1,040,453

Carrying amount 1,040,453

Less: Retirement price (1,000,000 x 105) 1,050,000
Gain (loss) -9,547

3) On June 30, 2029

Since it is retired on the maturity date, the answer is 0.
You should have no gain or loss.
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<03/01/25

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