Question 3

Question 3 (20 marks) On 1 January 2019, COCO Limited issued a bond with a face value of $600,000 for cash. The bond will mature in 5 years with interest rate of 8% per year. Interest is paid annually on 31 December with the rst payment on 31 December 2019. Bond investors require an effective interest rate of 9% per year. COCO Limited accounts for the bond using the effective-interest method. Present value of] at 8% for 5 years = 0.68058 Present value of 1 at 9% for 5 years = 0.64993 Present value of an ordinary annuity of 1 at 8% for 5 years = 3.99271 Present value of an ordinary annuity of 1 at 9% for 5 years : 3.88965 Required: Round to integers. (a) Determine the present value of the bonds on 1 January 2019. (3 marks) (b) Prepare the journal entry to record the issuance of bonds on 1 January 2019. (2 marks) (0) Prepare the bond amortisation table for COCO Limited, indicating the amount of interest payment, interest expense, amortisation, and carrying amount of the bonds at each 31 December for the rst three years up to 31 December 2021. (12 marks) ((1) Prepare the journal entry to record the rst interest payment on 31 December 2019. (3 marks) [Total for Question 3: 20 marks]