Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I have the answer to the question below but I need to know how to calculate these two equations (P/F 4%, 20) & (P/A 4%,

I have the answer to the question below but I need to know how to calculate these two equations

(P/F 4%, 20) & (P/A 4%, 20)

I have a BAII plus calculator and can't remember how to calculate these..

Brown Inc. (BI) reports an investment in bonds using the amortized cost method. The bonds have a face value of $1,000,000 and were purchased on January1, 20X7. The market interest rate is 8% and the bonds pay interest at a rate of 6%. Interest payments are made every June30 and December31. The bonds mature 10 years from the date of purchase, on December31.

What journal entry records the acquisition of the bonds on January1, 20X7?

a)Dr. Investment in bonds$864,100Cr. Cash$864,100

b)Dr. Cash$864,100Cr. Bonds payable$864,100

c)Dr. Investment in bonds$1,000,000Cr. Cash$1,000,000

d)Dr. Investment in bonds$664,496Cr. Cash$664,496

Answer a) is correct:

$1,000,000 (P/F 4%, 20) = $1,000,000 0.45639 = $456,390

$30,000 interest (P/A 4%, 20) = $30,000 13.59033 = $407,710

Issuance price (fair value) = $456,390 + $407,710 = $864,100

4% = 8% / 2 to reflect 20 half-year periods

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting A Pathway Into The World Of Business And Data Analytics

Authors: Carl S. Warren, Jefferson P. Jones, William Tayler

29th Edition

0357899644, 9780357899649

More Books

Students also viewed these Accounting questions

Question

What is a numerical value that is computed from a census called?

Answered: 1 week ago

Question

Always have the dignity of the other or others as a backdrop.

Answered: 1 week ago