Question

Hartford Research issues bonds dated January 1, 2016, that pay interest semiannually on June 30 and December 31. The bonds have a $22,000 par value and an annual contract rate of 12%, 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.)

  

Required:

Consider each of the following three separate situations.

  

1. The market rate at the date of issuance is 10%.

(a) Complete the below table to determine the bonds' issue price on January 1, 2016.

	Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

(b) Prepare the journal entry to record their issuance.

• Record the issue of bonds with a par value of $22,000 cash on January 1, 2016. Assume that the market rate of interest at the date of issue is 10%.

• 2. The market rate at the date of issuance is 12%.

  (a) Complete the below table to determine the bonds' issue price on January 1, 2016.

• 	Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

• (b) Prepare the journal entry to record their issuance.

• Journal entry worksheet

• Record the issue of bonds with a par value of $22,000 cash on January 1, 2016. Assume that the market rate of interest at the date of issue is 12%.

3. The market rate at the date of issuance is 14%.

(a) Complete the below table to determine the bonds' issue price on January 1, 2016.

	Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

• Record the issue of bonds with a par value of $22,000 cash on January 1, 2016. Assume that the market rate of interest at the date of issue is 14%.

Answer 1

Face Value = $22,000

Annual Coupon Rate = 12%
Semiannual Coupon Rate = 6%
Semiannual Coupon = 6% * $22,000
Semiannual Coupon = $1,320

Time to Maturity = 10 years
Semiannual Period = 20

Answer 1.

Annual Interest Rate = 10%
Semiannual Interest Rate = 5%

Answer 2.

Annual Interest Rate = 12%
Semiannual Interest Rate = 6%

Answer 3.

Annual Interest Rate = 14%
Semiannual Interest Rate = 7%