Question

Chapter 10 Question 1:

Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds have a $20,000 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

Complete the below table to determine the bonds' issue price on January 1, 2017, if the market rate at the date of issuance is 8%.

Prepare the journal entry to record their issuance, if the market rate at the date of issuance is 8%.

Journal entry worksheet

Record the issue of bonds with a par value of $20,000 cash on January 1, 2017. Assume that the market rate of interest at the date of issue is 8%.

Note: Enter debits before credits.

Date General Journal Debit Credit Jan 01, 2017 Complete the below table to determine the bonds' issue price on January 1, 2017, if the market rate at the date of issuance is 10%. Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds Prepare the journal entry to record their issuance, if the market rate at the date of issuance is 10%. Journal entry worksheet Record the issue of bonds with a par value of $20,000 cash on January 1, 2017. Assume that the market rate of interest at the date of issue is 10%. Note: Enter debits before credits. Date General Journal Debit Credit Jan 01, 2017 Complete the below table to determine the bonds' issue price on January 1, 2017, if the market rate at the date of issuance is 12%. Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds Prepare the journal entry to record their issuance, if the market rate at the date of issuance is 12%. Journal entry worksheet Record the issue of bonds with a par value of $20,000 on January 1, 2017. Assume that the market rate of interest at the date of issue is 12%. Note: Enter debits before credits. Date General Journal Debit Credit Jan 01, 2017

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

Answer 1

	Computation of Bond Present Value
			Market rate=8% P.a.		Market rate=10%		Market rate=12%
		Amount	PVAF@ 4% for 10 year ( 10*2= 20)	Present Value	PVAF@ 5% for 20 year ( 10*2= 20)	Present Value	PVAF@ 6% for 20 year ( 10*2= 20)	Present Value
	Present Value of Bond's maturity payment	$20,000.00	0.456	$9,120.00	0.448	$8,960.00	0.439	$8,780.00
	Cumm Present Value of Bond Semi- Annual Interest Payment	$1,000.00	13.59	$13,590.00	13.34	$13,340.00	13.1	$13,100.00
				$22,710.00		$22,300.00		$21,880.00
Journal Entry ( Market Interest Rate=8%
Date	Account	Debit	Credit
01-Jan	Cash	$22,710.00
	Premuim on Bond payable		$2,710.00
	Bond Payable		$20,000.00
	( Being issue the bond on Premuim
Journal Entry ( Market Interest Rate=10%
Date	Account	Debit	Credit
01-Jan	Cash	$22,300.00
	Premuim on Bond payable		$2,300.00
	Bond Payable		$20,000.00
	( Being issue the bond on Premuim
Journal Entry ( Market Interest Rate=10%
Date	Account	Debit	Credit
01-Jan	Cash	$21,880.00
	Premuim on Bond payable		$1,880.00
	Bond Payable		$20,000.00
	( Being issue the bond on Premuim