Question

Wildhorse issued $470,000 of 5%, 5-year bonds on January 1, 2021. Interest is payable semi-annually. Calculate the price of the bond: (a) 4%, (b) 5%, and (c) 6%.

(a)

Market interest rate 4%

$enter a dollar amount rounded to 0 decimal places (b)

Market interest rate 5%

$enter a dollar amount rounded to 0 decimal places (c)

Market interest rate 6%

$enter a dollar amount rounded to 0 decimal places

Prepare the journal entry to record the issuance of the bond assuming the market rate of interest is: (a) 4%, (b) 5%, and (c) 6%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(a)	enter an account title to record issuance of bonds	enter a debit amount	enter a credit amount
	enter an account title to record issuance of bonds	enter a debit amount	enter a credit amount
	(To record issuance of bonds.)
(b)	enter an account title to record issuance of bonds	enter a debit amount	enter a credit amount
	enter an account title to record issuance of bonds	enter a debit amount	enter a credit amount
	(To record issuance of bonds.)
(c)	enter an account title to record issuance of bonds	enter a debit amount	enter a credit amount
	enter an account title to record issuance of bonds	enter a debit amount	enter a credit amount
	(To record issuance of bonds.)

Answer 1

Based on the information available in the question we can answer as follows:-

Requirement A:-

The journal entry at market rate of Interest at 4% is :-

Table Values are based on
n=	10
i=	2%
Cash Flow	Amount	Table Value	Present Value
Interest payments	11,750	8.9826	105,545.55
Maturity Value	470,000	0.8203	385,563.70
Issue Price of the Bonds		491,109.25

Date	Particulars	Debit	Credit
January 1, 2021	Cash A/c Dr.	491,109
	Premium on Bonds Payable A/c		21,109
	Bonds Payable A/c		470,000
	(To record the issue of bonds at a premium)

Since the stated rate of interest is higher than the market rate of interest, the Bonds have been issued at a Premium.

Requirement B:-

The journal entry at market rate of interest at 5%:-

Date	Particulars	Debit	Credit
January 1, 2021	Cash A/c Dr.	470,000
	Bonds Payable A/c		470,000
	(To record the issue of bonds at a par)

Since the market rate of interest and stated rate of interest is the same, the bonds have been issued at par.

Requirement C:-

Table Values are based on
n=	10
i=	3%
Cash Flow	Amount	Table Value	Present Value
Interest payments	11,750	8.5302	100,229.85
Maturity Value	470,000	0.7441	349,724.14
Issue Price of the Bonds		449,953.99

Date	Particulars	Debit	Credit
January 1, 2021	Cash A/c Dr.	449,954
	Discount on Bonds Payable A/c	20,046
	Bonds Payable A/c		470,000
	(To record the issue of bonds at a premium)

Since the stated rate of interest is lower than the market rate of interest, the Bonds have been issued at a discount.

Please let me know if you have any questions via comments and all the best :) !