Question

Problem 14-7AA Computing bond price and recording issuance LO C2

Hartford Research issues bonds dated January 1 that pay interest semiannually on June 30 and December 31. The bonds have a $40,000 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 separate situation.

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

Complete the below table to determine the bonds' issue price on January 1 if the market rate at the date of issuance is 8%. Table values are based on: n = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

ANswer in these formats please!

Answer 1

Face Value of Bonds = $40,000

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $40,000
Semiannual Coupon = $2,000

Time to Maturity = 10 years
Semiannual Period = 20

Answer to Requirement 1:

Annual Interest Rate = 8.00%
Semiannual Interest Rate = 4.00%

Table values are based on: Cash Flow Par value Interest Price of bonds Table Value 0.4564 $ 13.5903 $ Amount Present Value 40,000 $ 18,256 2,000 $ 27,181 $ 45,437 Credit Date January 01 Debit 45,437 General Journal Cash Bonds Payable Premium on Bonds Payable 40,000 5,437

Answer to Requirement 2:

Annual Interest Rate = 10.00%
Semiannual Interest Rate = 5.00%

Table values are based on: 5 % Cash Flow Par value Interest Price of bonds Table Value 0.3769$ 12.4622 $ Amount Present Value 40,000 $ 15,076 2,000 $ 24,924 $ 40,000 Date Credit General Journal Cash Bonds Payable Debit 40,000 January 01 40,000

Answer to Requirement 3:

Annual Interest Rate = 12.00%
Semiannual Interest Rate = 6.00%

Table values are based on: n = 20 Cash Flow Par value Interest Price of bonds 6% Table Value 0.3118 $ 11.4699 $ Amount Present Value 40,000 $ 12,472 2,000 $ 22,940 $ 35,412 Credit Date January 01 $ General Journal Cash Discount on Bonds Payable Bonds Payable Debit 35,412 4,588 40,000