Park corporation is planning to issue bonds with a face value of $2,000,000 and a coupon rate of 10 percent. the bonds mature in 10 years and pay interest semiannually every june 30 and december 31. all of the bonds were sold on january 1 of this year. park uses the effective-interest amortization method and also uses a premium account. assume an annual market rate of interest of 8.5 percent. (fv of $1, pv of $1, fva of $1, and pva of $1) (use the appropriate factor(s) from the tables provided.) required: 1. prepare the journal entry to record the issuance of the bonds

Cash                      2,214,007 debit

        bonds payable              2,000,000 credit

        premium on B.P                 214,007 credit

Explanation:

To know the proceeds for the bonds we will calculate the present value of the coupon payment and the present vlaue of the maturity at market rate:

The coupon payment will be an ordnary annuity

Coupon payment: 2,000,000 x 0.05 =  100,000

time: 10 years x 2 payment per year = 20

rate8.5% annual rate: 0.085/2 = 0.0425 semiannual rate

PV$1,329,436.5808

Whilethe maturity the present value of a lump sum

Maturity  2,000,000.00

time   10 years to maturity

 rate  0.085

PV   884,570.83

PV coupon payment$1,329,436.5808

PV maturity                   $884,570.8301

Total$2,214,007.4109

facevalue  2,000,000

premium        214,007