Question

Hartford Research issues bonds dated January 1 that pay interest semiannually on June 30 and December 31. The bonds have a $31,000 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. Round all table values to 4 decimal places, and use the rounded table values in calculations.)

Required:
Consider each separate situation.

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

	Table values are based on: n = i = 6.0% Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

Answer 1

1a) Complete table : Table values are based on : 20 years i Cash flow Table value Par (maturity) Value Interest (annuity) Price of bonds 5% Amount Present value 0.3769 31000 $ 11,684 12.4622 1860 $ 23,180 $ 34,864 1b) Journal entries : Date credit debit $ 34,864 accounts & explanation Jan-01 Cash a/c Bonds payable a/c Premium on bonds payable (To record issuance of bonds payable) 31000 3,864

2a) Complete table : Table values are based on : 20 years Table value Cash flow Par (maturity) Value Interest (annuity) Price of bonds Amount Present value 0.3118 31000 $ 9,666 11.4699 1860 $ 21,334 $ 31,000 1b) Journal entries : Date credit debit $ 31,000 accounts & explanation Jan-01 Cash a/c Bonds payable a/c (To record issuance of bonds payable) 31000

Table values are based on: n 20 years i Cash flow Table value Par (maturity) Value Interest (annuity) Price of bonds 7% Amount 0.2584 3 10.594 Present value 1000 $ 8,010 1860 $ 19,705 $ 27,715 3b) Journal entries : Date credit accounts & explanation Jan-01 Cash a/c Discount on bonds payable Bonds payable a/c (To record issuance of bonds payable) debit $ $ 27,715 3,285 31000