Question

On January 1, 2018, Watch Works Incorporated (WWI) issued $70,000 par value, 3%, four-year bonds that mature on December 31, 2021. WWI will pay interest semiannually on June 30 and December 31. On the date WWI issued the bonds, the market rate of interest was 10%. The company's fiscal year ends on December 31. What is the issue price of this bond? Which of the following financial statement items is impacted in this transaction? Bonds Payable The problem is solving for: Present Value The calculation involves: Single Sum & Ordinary Annuity Step 1: Present Value of Interest Payment Step 2: Present Value of Par Value Amount Keystroke Amount Keystroke Step 1: Step 1: 00 unco Step 2: IM Step 2: IY Step 3: +/- PMT Step 3: FV Step 4: CPT PV Step 4: CPT PV Answer: Answer:

Answer 1

Table values are based on:
Face Amount	$70,000
Interest Payment	$70,000*3%*6/12 =$1,050
Market Interest rate per period	5%
Cash Flow	Table Value(PV of 5% for 8 period)	Amount	Present Value
PV of Interest	6.46321	$1,050	$6,786
PV of Principal	0.67684	$70,000	$47,379
PV of Bonds Payable(Issue Price)			$54,165
Step 1:Present Value of Interest Payment	Step 2:Present Value of Par Value
Amount	Amount
Step 1:8 period	Step 1:8 period
Step 2:5%	Step 2:5%
Step 3:$1,050	Step 3:$70,000
Step 4:	Step 4:
Answer:$6,786	Answer:$47,379
Present Value of Interest Payment + Present Value of Par Value =$6,786 + $47,379 =$54,165
	Accounts and explanation	Debit(in $)	Credit(in $)
	Cash	54,165
	Discount on Bonds Payable	15,835
	Bonds Payable		70,000