11 Bono (Problem in Spanish) The company Dharma Inc issues $ 800,000 in bonds in

Question

11 Bono (Problem in Spanish) The company Dharma Inc issues $ 800,000 in bonds in terms, Contract Rate 5%. Market Rate 8% Maturity 5 years, semi-annual interest payment. The semi-annual payments will be on June 30 and December 30 Required 1 In theory this issue is with Premium, discount or par. 2 Apply the five steps discussed in the course to determine the cash to receive and if the issue is with premium or discount 3 Present the entries or countable entries in the books of the issuer Prepare the Amortize table Using the Effective Interest method. a Issue entry January 1, 2015 b Interest payment entry or Expense accumulation and Amortization of c Expiration entry

Explanation / Answer

1)Here the market rate is higher than contract rate so it is at discount
2) I am not sure what is discussed in class but i will tell how to calculate, we use pv formaule in excle
=pv(rate,nper,pmt,fv,type)
=pv(8%/2,5*2,(800000*5%/2),800000,0)
=702669.25 and this is cash received
this is with discount
3)Cahs(db) 702669.25
discount on bonds payabel(cr) 97330.75
Bonda payable(Cr)800000

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