Hartford Research issues bonds dated January 1, 2017, that pay interest semiannu

Question

Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds have a $30,000 par value and an annual contract rate of 10%, and they mature in 10 years. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided. Round all table values to 4 decimal places, and use the rounded table values in calculations.) Required: Consider each of the following three separate situations. 1. The market rate at the date of issuance is 8%. (a) Complete the below table to determine the bonds' issue price on January 1, 2017. (b) Prepare the journal entry to record their issuance. 2. The market rate at the date of issuance is 10%. (a) Complete the below table to determine the bonds' issue price on January 1, 2017. (b) Prepare the journal entry to record their issuance. 3. The market rate at the date of issuance is 12%. (a) Complete the below table to determine the bonds' issue price on January 1, 2017. (b) Prepare the journal entry to record their issuance.

Explanation / Answer

Case-1 Market rate of interest is 8% Par value of bonds 30000 Semi annual interest (30000*10%*6/12) 1500 Annuity present value factor for 20 periods at 4% 13.5903 PV factor for 20th period 0.4564 Present vlue of interest payment 20385.45 Present vlue of maturity amount 13692 Issue price 34077 Journal entry for issuance: Cash account Dr. 34077     Bonds payable Account 30000     Premium on bonds payable 4077 Case-2 Market rate is 10% When the market rate is equal to stated rate then the issue is made at par value i.e. $ 30000. Hence, Issue price is $ 30000 Journal entry for issuance: Cash account Dr. 30000     Bonds payable Account 30000 Case-3 Market rate is 12% Par value of bonds 30000 Semi annual interest (30000*10%*6/12) 1500 Annuity present value factor for 20 periods at 6% 11.4699 PV factor for 20th period 0.3118 Present vlue of interest payment 17204.85 Present vlue of maturity amount 9354 Issue price 26559 Journal entry for issuance: Cash account Dr. 26559 Discount on bonds payable Dr. 3441     Bonds payable Account 30000

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.