The bradford company issued 10% bonds, dated january 1, with a face amount of $80 million on january 1, 2018. the bonds mature on december 31, 2027 (10 years). for bonds of similar risk and maturity, the market yield is 12%. interest is paid semiannually on june 30 and december 31. (fv of $1, pv of $1, fva of $1, pva of $1, fvad of $1 and pvad of $1) (use appropriate factor(s) from the tables provided.) required: 1. determine the price of the bonds at january 1, 2018. 2. to 4. prepare the journal entry to record their issuance by the bradford company on january 1, 2018, interest on june 30, 2018 and interest on december 31, 2018 (at the effective rate).

cash                                       67,962,962 debit

discount on bonds payable 12,037,037  debit

      bonds payable 80,000,000 credit

--to record bonds issuance-----

interest expense4,077,777.75

amortization                        77, 777.75

cash                          4,000,000

-- to record June 30th payment--

interest expense4082,444.42

amortization                   82,444.42

cash                      4,000,000

-- to record December 31th payment--

Explanation:

The present value of the bond will be the sum of the present value of the coupon payment at market rate:

C4,000,000 (80,000,000x 10%/2)

time40 (20 years x 2 payment per eyar)

rate           0.06 (12% market rate / 2)

PV$60,185,187.4861

And the present value of the maturity at market rate as well:

Maturity   80,000,000.00

time   40

rate  0.06

PV   7,777,775.02

PV c$60,185,187.4861

PV m  $7,777,775.0167

Total$67,962,962.5028

first period

Then the interest expense will be:

67,962,962  x 0.06 = 4.077.777,72‬

cash proceeds:                   ( 4,000,000)

amortization                                 77,777.72

for the second period:

carrying value:

67,962,962 + 77,777.72 = 68,040,740

interest expense

68,040,740  x 0.06 =  4,082,444.42

cash proceeds            4,000,000

amortization                      82444.42

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