Hartford Research issues bonds dated January 1. 2013. that pay interest semiannu

Question

Hartford Research issues bonds dated January 1. 2013. that pay interest semiannually on June 30 and December 31. The bonds have a $40,000 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. Round your 'Present Value' answers to the nearest whole dollar.) Required: Consider each of the following three separate situations. The market rate at the date of issuance is 8%. Complete the below table to determine the bonds' issue price on January 1, 2013. Prepare the journal entry to record their issuance.

Explanation / Answer

1. Market rate at the date of issuance is 8% FV (Face Value of Bond) -40000 PMT (Interest Per Period) -2000 N (Number of Periods) 20 Market Rate 4.00% PV (Issue Price) $45,436.13 Issue price of Bond is $45436.13 Journal Entry January 1,2008 Cash Account .......................................Dr. $45,436.13      To Bond Payable ..............................Cr. $40,000.00      To Premium on Bonds Payable ..........Cr. $5,436.13 2. Market rate at the date of issuance is 10% FV (Face Value of Bond) -40000 PMT (Interest Per Period) -2000 N (Number of Periods) 20 Market Rate 5.00% PV (Issue Price) $40,000.00 Issue price of Bond is $40,000 Journal Entry January 1,2008 Cash Account .......................................Dr. $40,000.00      To Bond Payable ..............................Cr. $40,000.00 3. Market rate at the date of issuance is 12% FV (Face Value of Bond) -40000 PMT (Interest Per Period) -2000 N (Number of Periods) 20 Market Rate 6.00% PV (Issue Price) $35,412.03 Issue price of Bond is $35,412.03 Journal Entry January 1,2008 Cash Account .......................................Dr. $35,412.03 Discount on Issue of Bond......................Dr. $4,587.97      To Bond Payable ..............................Cr. $40,000.00

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