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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.

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Expert Solution

Case-1 Market rate of interest is 8%
Par value of bonds 30000
Semi annual interest (30000*10%*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 (30000*10%*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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