Question

Bringham Company issues bonds with a par value of $660,000 on their stated issue date. The bonds mature in 10 years and pay 9% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.)

1. What is the amount of each semiannual interest payment for these bonds?

2. How many semiannual interest payments will be made on these bonds over their life?

3. Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a premium.

4. Compute the price of the bonds as of their issue date. 5. Prepare the journal entry to record the bonds’ issuance.

Req 1 to 3 Req 4 Req 5 What is the amount of each semiannual interest payment for these bonds? How many semiannual interest payments will be made on these bonds over their life? Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a premium Semiannual cash Semiannual Par (maturity) value interest payment Rate Number of payments Whether the bonds are issued at par, at a discount, or at a premium?

Answer 1

Table values are based on:
n=	20	Interest Payment will be made 20 times
i=	4.5%
Cash Flow	Amount	Present Value
Interest	$660,000*4.5% =$29,700	$29,700*PVAF(6%,20) =$29,700*11.46992 =$340,657
Principal	$660,000	$660,000*PVIF(6%,20) =$660,000*0.31180 =$205,788
Price of Bonds		$546,445
Discount on Bonds =$660,000 - $546,445 =$113,555
The Bonds are issued at discount
Price of Bonds as at issued date =$546,445
	Date	Accounts and explanation	Debit(in $)	Credit(in $)
	Issue date	Cash	5,46,445
		Discount on Bonds Payable	1,13,555
		Bonds Payable		6,60,000
		(To bonds issued at discount)