Question

Hartford Research issues bonds dated January 1 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 amount.)
  
Required:
Consider each of the following three separate situations.
  
1. The market rate at the date of issuance is 8%.
(a) Complete the below table to determine the bonds' issue price on January 1.
(b) Prepare the journal entry to record their issuance.
2. The market rate at the date of issuance is 10%.
(a) Complete the below table to determine the bonds' issue price on January 1.
(b) Prepare the journal entry to record their issuance.
3. The market rate at the date of issuance is 12%.
(a) Complete the below table to determine the bonds' issue price on January 1.
(b) Prepare the journal entry to record their issuance.

Answer 1

Solution 1a:
Computation of bond price
Table values are based on:
n=	20
i=	4.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.4564	$40,000.00	$18,256
Interest (Annuity)	13.5903	$2,000.00	$27,181
Price of bonds			$45,437

Solution 1b:
Journal Entries - Hartford research
Date	Particulars	Debit	Credit
1-Jan	Cash Dr	$45,437.00
	To Bond Payable		$40,000.00
	To Premium on Bond Payable		$5,437.00
	(To record issue of bond at premium)

Solution 2a:
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	$40,000.00	$15,076
Interest (Annuity)	12.4622	$2,000.00	$24,924
Price of bonds			$40,000

Solution 2b:
Journal Entries - Hartford research
Event	Particulars	Debit	Credit
1-Jan	Cash Dr	$40,000.00
	To Bond Payable		$40,000.00
	(To record issue of bond at par)

Solution 3a:
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	$40,000.00	$12,472
Interest (Annuity)	11.4699	$2,000.00	$22,940
Price of bonds			$35,412

Solution 3b:
Journal Entries - Hartford research
Event	Particulars	Debit	Credit
1-Jan	Cash Dr	$35,412.00
	Discount on issue of bond Dr	$4,588.00
	To Bond Payable		$40,000.00
	(To record issue of bond at discount)