Question

Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds have a $24,000 par value and an annual contract rate of 8%, and they mature in 10 years.

Consider each of the following three separate situations.

1. The market rate at the date of issuance is 6%.
(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 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.
3. 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.

Answer 1

Req1:
Par value of bonds				24000
Stated rate of interest				8%
Semi annual interest payment				960
Annuity factor of 3% for 20 periods				14.8774
Present value factor of period -20				0.5537
Present value of interst				14282.3
Present value of Maturity value				13288.8
Issue price				27571.1
Premium n Iissue				3571.104
Journal entry:
Cash Account Dr.				27571
Bonds payable Account					24000
Premium on bonds payable					3571
Req 2:
The market rate being same as stated, Issue price is same as par value
Journal entry:
Cash account Dr.			24000
Bonds payable				24000
Req 3:
Par value of bonds				24000
Stated rate of interest				8%
Semi annual interest payment				960
Annuity factor of 5% for 20 periods				12.462
Present value factor of period -20				0.3769
Present value of interst				11963.52
Present value of Maturity value				9045.6
Issue price				21009.12
Discount on Issue				2991
Journal entry:
Cash Acount Dr.				21009
Discount on issue of bonds Dr.				2991
Bonds Payable					24000