Hartford Research issues bonds dated January 1, 2015, that pay interest semiannu
ID: 2423486 • Letter: H
Question
Hartford Research issues bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds have a $31,000 par value and an annual contract rate of 12%, 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.)
Complete the below table to determine the bonds' issue price on January 1, 2015.
Prepare the journal entry to record their issuance.
Journal Entry Worksheet
Record the issue of bonds with a par value of $31,000 cash on January 1, 2015. Assume that the market rate of interest at the date of issue is 10%.
*Enter debits before credits
Hartford Research issues bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds have a $31,000 par value and an annual contract rate of 12%, 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.)
Explanation / Answer
1 (a)
Calculation of bonds' issue price on January 1, 2015:
Table values are based on:
n = Number of Semiannual = 10 yeas *2 =
20
i = Semiannual Market interest rate = 10%/2 =
5%
Cash Flow
Table Value
Amount
Present Value
A
B
A*B
Par (maturity) value (PV of $1 (5%, 20 periods) =
0.3769
$ 31,000.00
$ 11,683.90
Interest (annuity) = PV of Annuity $1 (5%, 20 periods)
12.4622
$ 1,860.00
$ 23,179.69
(31000*12%/2)
Price of bonds (sum)
$ 34,863.59
1 (b)
Journal entry to record their issuance:
Date
General Journal
Debit
Credit
Jan. 01, 2015
Cash
$ 34,863.59
Premium on bonds payable (34863.59-31000)
$ 3,863.59
Bonds payable
$ 31,000.00
(Being bonds issued at premium)
1 (a)
Calculation of bonds' issue price on January 1, 2015:
Table values are based on:
n = Number of Semiannual = 10 yeas *2 =
20
i = Semiannual Market interest rate = 10%/2 =
5%
Cash Flow
Table Value
Amount
Present Value
A
B
A*B
Par (maturity) value (PV of $1 (5%, 20 periods) =
0.3769
$ 31,000.00
$ 11,683.90
Interest (annuity) = PV of Annuity $1 (5%, 20 periods)
12.4622
$ 1,860.00
$ 23,179.69
(31000*12%/2)
Price of bonds (sum)
$ 34,863.59
1 (b)
Journal entry to record their issuance:
Date
General Journal
Debit
Credit
Jan. 01, 2015
Cash
$ 34,863.59
Premium on bonds payable (34863.59-31000)
$ 3,863.59
Bonds payable
$ 31,000.00
(Being bonds issued at premium)
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