Question

Hartford Research issues bonds dated January 1, 2017, 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 B1 Table B.2. Table B.3, and Table B.4) (Use appropriate factorfe) 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 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.. 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, 2017 (b) Prepare the journal entry to record their issuance 3. The market rate at the dete of issuance is 14 % (a) Complete the below toble to determine the bonds' issue price on January 1, 2017 (b) Prepare the journal entry to record their issuance

Answer 1

Interest on bonds= $22000*12%*6/12= $1320

1-a)

Tables value are based on:
n	(10*2)= 20
i	(10%/2)= 5%
Cash flow	Table value	Amount	Present value
Par (maturity) value	0.3769	$22000	$8291.8
Interest annuity	12.4622	1320	16450.10
Price of bonds			$24741.90

b)

Date	Account titles and explanation	Debit	Credit
Jan 1, 2017	Cash	$24741.90
	Premium on bonds payable ($24741.90-22000)		$2741.90
	Bonds payable		$22000.00
	(To record bonds issued at premium)

2-a)

Tables value are based on:
n	(10*2)= 20
i	(12%/2)= 6%
Cash flow	Table value	Amount	Present value
Par (maturity) value	0.3118	$22000	$6859.6
Interest annuity	11.4699	1320	15140.29
Price of bonds			$21999.89

b)

Date	Account titles and explanation	Debit	Credit
Jan 1, 2017	Cash	$22000
	Bonds payable		$22000
	(To record bonds issued)

The difference is because off rounding.

3-a)

Tables value are based on:
n	(10*2)= 20
i	(14%/2)= 7%
Cash flow	Table value	Amount	Present value
Par (maturity) value	0.2584	$22000	$5684.8
Interest annuity	10.5940	1320	13984.08
Price of bonds			$19668.88

b)

Date	Account titles and explanation	Debit	Credit
Jan 1, 2017	Cash	$19668.88
	Bonds payable (22000.00-19668.88)	$2331.12
	Discount on bonds payable		$22000.00
	(To record bonds issued at discount)