Question

Queen Energy Inc. issued bonds on January 1, 2020, that pay interest semiannually on June 30 and December 31. The par value of the bonds is $310,000, the annual contract rate is 12%, and the bonds mature in 10 years. (Use TABLE 14A.1 and TABLE 14A.2.) (Use appropriate factor(s) from the tables provided.)

Required:
a. For each of these three situations, determine the issue price of the bonds.

1. 8%

2. 12%

3. 14%

b. For each of these three situations, prepare the journal entry that would record the issuance, assuming the market interest rate at the date of issuance was (1) 8%, (2) 12%, (3) 14%. (Use PV tables in determining the issue price of the bonds. Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

1. Record the sale of bonds on original issue date at 8% market interest rate.

2. Record issuance of bond payable at 12% market interest rate.

3. Record issuance of bond payable at 14% market interest rate.

please answer correctly , i am posting this second time .

Answer 1

Req 1.
Case-a Market rate-8%
Semi annual cash interest = 310000*12%*6/12 =	18600
n = 20
I = 4%
Cashflows		Amount	PVF	Present value
Semi annual cash interest	18600	13.59033	252780.1
Maturity amount		310000	0.456387	141480
Price of bonds				394260.1
Case-b Market rate - 12%
Semi annual cash interest = 310000*12%*6/12 =	18600
n = 20
I = 6%
Cashflows		Amount	PVF	Present value
Semi annual cash interest	18600	11.46992	213340.5
Maturity amount		310000	0.311805	96659.55
Price of bonds				310000.1
Case-c Market rate -14%
Semi annual cash interest = 310000*12%*6/12 =	18600
n = 20
I = 7%
Cashflows		Amount	PVF	Present value
Semi annual cash interest	18600	10.59401	197048.6
Maturity amount		310000	0.258419	80109.89
Price of bonds				277158.5
Req 2.
Journal entries:
S.no.	Accounts title and explanations		Debit $	Credit $
Case-a	Cash account			394260
	Bonds payable				310000
	Premium on bonds payable			84260
	(for issuance of bonds)
case-b	Cash account			310000
	Bonds payable				310000
	(for issuance of bonds)
case-c	Cash account			277159
	Discount on bonds payable		32841
	Bonds payable				310000
	(for issuance of bonds)