On February 1, 2016, Cromley Motor Products issued 6% bonds, datedFebruary 1, with a face amount of $55 million. The bonds mature onJanuary 31, 2020 (4 years). The market yield for bonds of similarrisk and maturity was 8%. Interest is paid semiannually on July 31and January 31. Barnwell Industries acquired $55,000 of the bondsas a long-term investment. The fiscal years of both firms endDecember 31.
1.
Determine the price of the bonds issued on February 1, 2016
2.1
Prepare amortization schedules that indicate Cromleyâs effectiveinterest expense for each interest period during the term tomaturity.
2.2
Prepare amortization schedules that indicate Barnwellâs effectiveinterest revenue for each interest period during the term tomaturity.
3.
Prepare the journal entries to record the issuance of the bonds byCromley and Barnwellâs investment on February 1, 2016
4.
Prepare the journal entries by both firms to record all subsequentevents related to the bonds through January 31, 2018.
On February 1, 2016, Cromley Motor Products issued 6% bonds, datedFebruary 1, with a face amount of $55 million. The bonds mature onJanuary 31, 2020 (4 years). The market yield for bonds of similarrisk and maturity was 8%. Interest is paid semiannually on July 31and January 31. Barnwell Industries acquired $55,000 of the bondsas a long-term investment. The fiscal years of both firms endDecember 31.
1.
Determine the price of the bonds issued on February 1, 2016
2.1
Prepare amortization schedules that indicate Cromleyâs effectiveinterest expense for each interest period during the term tomaturity.
2.2
Prepare amortization schedules that indicate Barnwellâs effectiveinterest revenue for each interest period during the term tomaturity.
3.
Prepare the journal entries to record the issuance of the bonds byCromley and Barnwellâs investment on February 1, 2016
4.
Prepare the journal entries by both firms to record all subsequentevents related to the bonds through January 31, 2018.
Related questions
On February 1, 2016, Cromley Motor Products issued 6% bonds,dated February 1, with a face amount of $80 million. The bondsmature on January 31, 2020 (4 years). The market yield for bonds ofsimilar risk and maturity was 8%. Interest is paid semiannually onJuly 31 and January 31. Barnwell Industries acquired $80,000 of thebonds as a long-term investment. The fiscal years of both firms endDecember 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1and PVAD of $1) (Use appropriate factor(s) from the tablesprovided.)
| Required: | |
| 1. | Determine the price of the bonds issued on February 1, 2016.(Enter your answer in whole dollars.) |
| 2.1 | Prepare amortization schedules that indicate Cromleyâs effectiveinterest expense for each interest period during the term tomaturity. (Enter your answers in wholedollars.) |
| 2.2 | Prepare amortization schedules that indicate Barnwellâseffective interest revenue for each interest period during the termto maturity. (Enter your answers in wholedollars.) |
| 3. | Prepare the journal entries to record the issuance of the bondsby Cromley and Barnwellâs investment on February 1, 2016.(If no entry is required for a transaction/event, select"No journal entry required" in the first account field. Enter youranswers in whole dollars.) |
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Record the Bond investment by Barnwell. |
