Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and...

Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds have a $30,000 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.) 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, 2017. (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, 2017. (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, 2017. (b) Prepare the journal entry to record their issuance.

Solutions

Expert Solution

Case-1 Market rate of interest is 8%
Par value of bonds		30000
Semi annual interest (3000010%6/12)		1500
Annuity present value factor for 20 periods at 4%		13.5903
PV factor for 20th period		0.4564

Present vlue of interest payment		20385.45
Present vlue of maturity amount		13692
Issue price		34077

Journal entry for issuance:
Cash account Dr.	34077
Bonds payable Account		30000
Premium on bonds payable		4077

Case-2 Market rate is 10%
When the market rate is equal to stated rate then the issue is made at par value i.e. $ 30000.
Hence, Issue price is $ 30000

Journal entry for issuance:
Cash account Dr.	30000
Bonds payable Account		30000

Case-3 Market rate is 12%
Par value of bonds		30000
Semi annual interest (3000010%6/12)		1500
Annuity present value factor for 20 periods at 6%		11.4699
PV factor for 20th period		0.3118

Present vlue of interest payment		17204.85
Present vlue of maturity amount		9354
Issue price		26559

Journal entry for issuance:
Cash account Dr.	26559
Discount on bonds payable Dr.	3441
Bonds payable Account		30000

ekkarill92 answered 1 year ago

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