cise 14% uting bond interest rice; recording issuance Bringham Company issues bo
ID: 2559079 • Letter: C
Question
cise 14% uting bond interest rice; recording issuance Bringham Company issues bonds with a par value of $800,000 on their stated issue date. The bonds me ture in 10 years and pay 6% annual interest in semiannual payments. On the issue date, the annual make rte for the bonds is 8%. 1. What is the amount of each semiannual interest payment for these bonds? 2. How many semiannual interest payments will be made on these bonds over their life? 3. Use the interest rates given to determine whether the bonds are issued at par, at a dis premium. 4. Compute the price of the bonds as of their issue date. 5. Prepare the journal entry to record the bonds' issuance. (4) $691,287Explanation / Answer
1. $24,000
Face Value of the Bonds = $800,000
Rate of interest = 6%
Annual interest = $48,000
Semiannula Interest = $24,000
2. As thetenure of the bond is ten years there will be 20 semiannual interest payments.
3. $696,715
A. Market rate of iterest =8%
PV factor of $1 received after 10 years at 8% = 0.463
Present Value of the matury value of the bond = 800,000 x 0.463 = $370,555
B. Semiannual interest = $24,000
PV for $1 annuity to received for 20 terms @4%(half of 8%) = 9.818
PResent value of the semiannual interest = 24,000 X 13.590 = $326,160
Price of the bond = $370,555+$326,160 = $ 696,715
4.
Account Title Debit Credit Cash 696715 Discount on bond issue 103285 Bonds Payable 800000Related Questions
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