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 B.3, and Table B.4) (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.

Answer 1

Solution 1:

Computation of bond price
Table values are based on:
n=	20
i=	4.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.45640	$20,000.00	$9,128
Interest (Annuity)	13.59030	$1,000.00	$13,590
Price of bonds			$22,718

Journal Entries - Hartford research
Date	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$22,718.00
	To Bond Payable		$20,000.00
	To Premium on Bond Payable		$2,718.00
	(To record issue of the bond at premium)

solution 2:

Computation of bond price
Table values are based on:
n=	20
i=	5.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.37690	$20,000.00	$7,538
Interest (Annuity)	12.46220	$1,000.00	$12,462
Price of bonds			$20,000

Journal Entries - Hartford research
Event	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$20,000.00
	To Bond Payable		$20,000.00
	(To record issue of the bond at par)

solution 3:

Computation of bond price
Table values are based on:
n=	20
i=	6.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.3118	$20,000.00	$6,236
Interest (Annuity)	11.4699	$1,000.00	$11,470
Price of bonds			$17,706

Journal Entries - Hartford research
Event	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$17,706.00
	Discount on issue of bond Dr	$2,294.00
	To Bond Payable		$20,000.00
	(To record issue of the bond at discount)