Question

Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds have a $20,000 par value and an annual contract rate of 10%, and they mature in 10 years. (Table B.1. Table B.2. Table 8.3. and Table B4 (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 of the following three separate situations. 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, 2017 (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, 2017 (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, 2017 (b) Prepare the journal entry to record their issuance. ances Complete this question by entering your answers in the tabs below. Required 1A Required 18 Required 2A Required 2B Required 3A Required 38 w nn January 1, 2017, if the market rate at the date of issuance is

Answer 1

Face Value 20,000 Coupan Rate 10.00% 5.00%|(10%/2) Coupan Rate per interest period Tenure in Years- A 10 Semi-annually Interest payment semi-annual interest Interest periods (B=A*2) 20 payments 1) Price of Bond at 1st Jan 2017 Market Yield - C 8% Market Yield per interest period (D=C/2) 4% 20 In3= 4% Table value Table value Present Amount (B) Vaue (A*B) formula Cash Flow (A) 0.4564 $ 1/(1.04)^20 20,000 $ 9,128 1,000 $ 13,590 $ 22,718 Par (maturity) value Interest (annuity)* 13.5904 $ Price of Bonds %24

Interest amount per period *pV of interest payments: 1,000 ($20,000 * 5%) PV of Interest Present Present Value Interest payment per Value Factor Payments Interest Period period 2$ Factor 1,000 1/(1.04) 1,000 1/(1.04)^2 1,000 1/(1.04)^3 1,000 1/(1.04)^4 1,000 1/(1.04)^5 1,000 1/(1.04)^6 1,000 1/(1.04)^7 1,000 1/(1.04)^8 1,000 1/(1.04)^9 1,000 1/(1.04)^10 1,000 1/(1.04)^11 1,000 1/(1.04)^12 1,000 1/(1.04)^13 1,000 1/(1.04)^14 1,000 1/(1.04)^15 1,000 1/(1.04)^16 1,000 1/(1.04)^17 0.9615 $ 961.50 30-Jun-17 2$ 0.9246 $ 924.60 0.889 $ 889.00 31-Dec-17 2$ 30-Jun-18 2$ 0.8548 $ 854.80 31-Dec-18 2$ 0.8219 $ 821.90 30-Jun-19 0.7903 $ 790.30 31-Dec-19 759. 30-Jun-20 759 2$ 0.7307 $ 730.70 0.7026 $ 702.60 31-Dec-20 30-Jun-21 0.6756 $ 675.60 31-Dec-21 0.6496 $ 649.60 0.6246 $ 624.60 30-Jun-22 31-Dec-22 0.6006 $ 600.60 30-Jun-23 0.5775 $ 577.50 31-Dec-23 0.5553 $ 555.30 30-Jun-24 0.5339 $ 533.90 31-Dec-24 0.5134 $ 513.40 30-Jun-25

2$ 1,000 1/(1.04)^18 1,000 1/(1.04)^19 1,000 1/(1.04)^20 0.4936 $ 493.60 31-Dec-25 0.4746 $ 474.60 30-Jun-26 0.4564 $ 456.40 31-Dec-26 13.5904 $ 13,590 20,000 Journal entry Cash 22,718 To Premium on Bonds 2,718 To Bonds Payable 20,000 2) Price of Bond at 1st Jan 2017 Market Yield - C 10% Market Yield per interest period (D=C/2) 5% %24

20 5% Table value Table value Present Amount (B) Vaue (A*B) 20,000 $ 1,000 $ 12,462 $ 20,000 formula Cash Flow (A) Par (maturity) value Interest (annuity)* 1/(1.05)^20 0.3769 $ 7,538 12.4620 $ Price of Bonds Interest amount per period *PV of interest payments: 1,000 ($20,000 * 5%) PV of Interest Present Value Present payment per period 2$ Interest Value Factor Payments Interest Period Factor 1,000 1/(1.05) 1,000 1/(1.05)^2 1,000 1/(1.05)^3 1,000 1/(1.05)^4 1,000 1/(1.05)^5 1,000 1/(1.05)^6 1,000 1/(1.05)^7 1,000 1/(1.05)^8 1,000 1/(1.05)^g 0.9524 $ 952.40 30-Jun-17 2$ 0.907 $ 907.00 31-Dec-17 0.8638 $ 863.80 30-Jun-18 2$ 0.8227 $ 822.70 31-Dec-18 0.7835 $ 783.50 30-Jun-19 0.7462 $ 746.20 31-Dec-19 0.7107 $ 710.70 30-Jun-20 0.6768 $ 676.80 31-Dec-20 0.6446 $ 644.60 30-Jun-21

1,000 1/(1.05)^10 1,000 1/(1.05)^11 1,000 1/(1.05)^12 1,000 1/(1.05)^13 1,000 1/(1.05)^14 1,000 1/(1.05)^15 1,000 1/(1.05)^16 1,000 1/(1.05)^17 1,000 1/(1.05)^18 1,000 1/(1.05)^19 1,000 1/(1.05)^20 0.6139 $ 613.90 31-Dec-21 2$ 0.5847 $ 584.70 30-Jun-22 0.5568 $ 556.80 31-Dec-22 2$ 0.5303 $ 530.30 30-Jun-23 0.5051 $ 505.10 31-Dec-23 0.481 $ 481.00 30-Jun-24 0.4581 $ 458.10 31-Dec-24 2$ 0.4363 $ 436.30 30-Jun-25 0.4155 $ 415.50 31-Dec-25 0.3957 $ 395.70 30-Jun-26 0.3769 $ 376.90 31-Dec-26 12.4620 $ 12,462 20,000 Journal entry Cash 20,000 To Bonds Payable 20,000 %24

3) Price of Bond at 1st Jan 2017 Market Yield - C 12% Market Yield per interest period (D=C/2) 6% 20 6% Table value Table value Present Cash Flow Amount (B) Vaue (A*B) 20,000 $ 6,236 1,000 $ 11,470 $ 17,706 formula (A) 0.3118 $ Par (maturity) value Interest (annuity)* 1/(1.06)^20 11.4700 Price of Bonds Interest amount per period *pV of interest payments: 2$ 1,000 ($20,000 * 5%) Interest PV of payment per Present Value Present Interest Value Factor Payments Interest Period period Factor 1,000 1/(1.06) 1,000 1/(1.06)^2 1,000 1/(1.06)^3 1,000 1/(1.06)^4 1,000 1/(1.06)^5 0.9434 $ 943.40 30-Jun-17 0.89 $ 890.00 31-Dec-17 0.8396 $ 839.60 30-Jun-18 0.7921 $ 792.10 0.7473 $ 747.30 31-Dec-18 30-Jun-19

1,000 1/(1.06)^6 1,000 1/(1.06)^7 1,000 1/(1.06)^8 1,000 1/(1.06)^9 1,000 1/(1.06)^10 1,000 1/(1.06)^11 1,000 1/(1.06)^12 1,000 1/(1.06)^13 1,000 1/(1.06)^14 1,000 1/(1.06)^15 1,000 1/(1.06)^16 1,000 1/(1.06)^17 1,000 1/(1.06)^18 1,000 1/(1.06)^19 1,000 1/(1.06)^20 0.705 $ 705.00 31-Dec-19 2$ 0.6651 $ 665.10 30-Jun-20 0.6274 $ 627.40 31-Dec-20 2$ 0.5919 $ 591.90 30-Jun-21 0.5584 $ 558.40 31-Dec-21 2$ 0.5268 $ 526.80 0.497 $ 497.00 30-Jun-22 31-Dec-22 0.4688 $ 468.80 30-Jun-23 0.4423 $ 442.30 31-Dec-23 2$ 0.4173 $ 417.30 30-Jun-24 0.3936 $ 393.60 31-Dec-24 0.3714 $ 371.40 30-Jun-25 2$ 0.3503 $ 350.30 31-Dec-25 0.3305 $ 330.50 30-Jun-26 0.3118 $ 311.80 31-Dec-26 11.4700 $ 11,470 20,000 Journal entry Cash 17,706 Discount on Bonds 2,294 To Bonds Payable 20,000 %24