Question
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started