Question

i need help with this!

Citywide Company issues bonds with a par value of $78,000. The bonds mature in eight years and pay 11% annual interest in semiannual payments. The annual market rate for the bonds is 8%. Table B1. Table B2 Table B3 and Table B4) (Use appropriate factor(s) from the tables provided.) 1. Compute the price of the bonds as of their issue date. 2. Prepare the journal entry to record the bonds' issuance. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the price of the bonds as of their issue date. (Round Intermediate calculations to the nearest dollar amount.) Table Values are Based on: Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds < Required 1 Required 2 >

Answer 1

	CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY
	Step 1 : Calculation of Semi Annual Coupon Payments
	Par value of the bond issued is   =			$78,000
	Annual Coupon %			11.00%
	Annual Coupon Amount			$8,580
	Semi Annual Coupon Amount			$4,290
	Step 2: Calculate number of years to Maturity
	Number of years to maturity = 8 years
	Interest is paid semi annyally so total period = 8 Years * 2 = 16 Periods
	Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds
	Market rate of interest or Yield to Maturity or Required Return = 8%
	Bonds interest is paid semi annualy means so discounting factor = 8 % /2= 4 %
	Period	Interest	Amount (In Million)	PVF of $ 1 @ 4%	PresentValue
	1	Interest	$4,290	0.9615	$4,125
	2	Interest	$4,290	0.9246	$3,966
	3	Interest	$4,290	0.8890	$3,814
	4	Interest	$4,290	0.8548	$3,667
	5	Interest	$4,290	0.8219	$3,526
	6	Interest	$4,290	0.7903	$3,390
	7	Interest	$4,290	0.7599	$3,260
	8	Interest	$4,290	0.7307	$3,135
	9	Interest	$4,290	0.7026	$3,014
	10	Interest	$4,290	0.6756	$2,898
	11	Interest	$4,290	0.6496	$2,787
	12	Interest	$4,290	0.6246	$2,680
	13	Interest	$4,290	0.6006	$2,576
	14	Interest	$4,290	0.5775	$2,477
	15	Interest	$4,290	0.5553	$2,382
	16	Interest	$4,290	0.5339	$2,290
	16	Princpal	$78,000	0.5339	$41,645
		CURRENT BOND PRICE			$91,633
SOLUTION : 1
	SIMULTANEOUSLY WE CAN SOLVE WITH BELOW MEHTOD
	Cash Flow	Taxable Value	Cumulative value of $ 1 @ 4 % in 16 Periods
	Par Value	$78,000	0.5339	41,645
	Interest (Annuity)	$4,290	11.6523	49,988
	Current Bonds Price			91,633
SOLUTION : 2
Trans.	General Journal	Debit	Credit
	For Issuance of Bonds for Cash
1	Cash Account	$91,633
	Bonds Payable		$78,000
	Premium on issuance of bond		$13,633