Question

Citywide Company issues bonds with a par value of $75,000 on their stated issue date. The bonds mature in five years and pay 10% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 8%. (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. Complete this question by entering your answers in the tabs below. Req 1 to 3 Reg 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. Par (maturity) value Semiannual Rate Semiannual cash interest payment Number of payments Whether the bonds are issued at par, at a discount, or at a premium? Req 1 to 3 Req 4 >

Answer 1

Solution 1 to 3:

D E F G H Par (Maturity) Value * Semiannual Rate (10%/2 = 5%) $75,000* 5%= Semiannual Cash Interest Payment $3,750 Number of Payments (5 years *2) Whether bonds issued at par, at a discounts or at a premium? At a premium (Because coupon rate is more than Market rate) 10 22 24 25 26 27 28 30 34 38 39 Sheet98 Sheet106 (7) Sheet100 Sheet224 She

Solution 4:

K L M N O 10 11 12 14 Chart Values are based on: n= (5 Years*2) 10 Half years i= (8%/2) 4% Semi annual Cash Flow Table Value * Amount = Present Value Par (Maturity) Value 0.6756* $75,000/= $50,670 Interest (Annuity) ($75,000*10%*6/12] 8.1109* $3,750 = $30,416) Price of Bonds $81,086 16 19 20 23 24 25 26 27 32 34 35 36 38 39 40 42 44 Sheet98 Sheet106 (7) ) Sheet100 Sheet224 She

Solution 5:

z АА AK е 10 11 12 Transaction Credit Debit | $81,086 13 14 General Journal Cash Dr To Premium on Bond To Bond Payable (To record issue of bonds) $6,086 $75,000 15 16 19 20 21 22 23 24 25 26 27 28 30 31 32 33 35 36 37 39 41 42 43 44 Sheet98 Sheet106 (7) Sheet100 Sheet224 She