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 $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.

Solutions

Expert Solution

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

ekkarill92 answered 1 year ago

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