Question

Problem 10-1AA Computing bond price and recording issuance LO C2, P1

Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds have a $22,000 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.)

Required:

Consider each of the following three separate situations.

1. 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.
2. 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.
3. The market rate at the date of issuance is 14%.
(a) Complete the below table to determine the bonds' issue price on January 1, 2017.
(b) Prepare the journal entry to record their issuance.

• Required 1A
• Required 1B
• Required 2A
• Required 2B
• Required 3A
• Required 3B

Complete the below table to determine the bonds' issue price on January 1, 2017, if the market rate at the date of issuance is 10%.

	Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

Answer 1

Solution 1a:

Computation of bond price
Table values are based on:
n=	20
i=	5.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.3769	$22,000.00	$8,292
Interest (Annuity)	12.4622	$1,320.00	$16,450
Price of bonds			$24,742

Solution 1b:

Journal Entries - Hartford research
Date	Particulars	Debit	Credit
1-Jan	Cash Dr	$24,742.00
	To Bond Payable		$22,000.00
	To Premium on Bond Payable		$2,742.00
	(To record issue of bond at premium)

Solution 2a:

Computation of bond price
Table values are based on:
n=	20
i=	6.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.3118	$22,000.00	$6,860
Interest (Annuity)	11.4699	$1,320.00	$15,140
Price of bonds			$22,000

Solution 2b:

Journal Entries - Hartford research
Event	Particulars	Debit	Credit
1-Jan	Cash Dr	$22,000.00
	To Bond Payable		$22,000.00
	(To record issue of bond at par)

Solution 3a:

Computation of bond price
Table values are based on:
n=	20
i=	7.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.2584	$22,000.00	$5,685
Interest (Annuity)	10.5940	$1,320.00	$13,984
Price of bonds			$19,669

Solution 3b:

Journal Entries - Hartford research
Event	Particulars	Debit	Credit
1-Jan	Cash Dr	$19,669.00
	Discount on issue of bond Dr	$2,331.00
	To Bond Payable		$22,000.00
	(To record issue of bond at discount)