Question

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Bringham Company issues bonds with a par value of $560,000. The bonds mature in 8 years and pay 7% annual interest in semiannual payments. The annual market rate for the bonds is 10%. (Table B.1, Table B.2, Table B.3, and Table B.4) (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 2 Required 1 Compute the price of the bonds as of their issue date. (Round all table values to 4 decimal places, and use the rounded table values in calculations. Round intermediate calculations to the nearest dollar amount.) Table Values are Based on: 16 j = 5.0% Cash Flow Table Value Amount Present Value Par (maturity) value 0.4581 х Interest (annuity) 0.0500 х $ 0 Price of bonds

Answer 1

Correct Answer:

Requirement 1:

Table values are based on:
n=	16 periods
i=	3.50%
cash flow	Table value	Amount	Present value
Par (maturity) value	0.4581	$               560,000.00	$            256,536
Interest (annuity)	10.8378	$                       19,600	$            212,421
Price of bonds			$            468,957

Working:

		Annual Rate	Applicable rate		Face Value	$     560,000.00
	Market Rate	10.00%	5.00%		Term (in years)	8
	Coupon Rate	7.00%	3.50%		Total no. of interest payments	16
Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$                     560,000	at	5.00%	Interest rate for	16	term payments
PV of $1	0.4581
PV of	$                     560,000	=	$                  560,000	x	0.4581	=	$           256,536.00	A
Interest payable per term	at	3.5%	on	$                           560,000
Interest payable per term	$                       19,600
PVAF of 1$	for	5.0%	Interest rate for	16	term payments
PVAF of 1$	10.8378
PV of Interest payments	=	$        19,600.00	x	10.8378	=		$           212,420.88	B
				Bond Value (A+B)			$                 468,957

Requirement 2:

Date	Description	Debit	Credit
Xx/xx/20xx	Cash	$    468,957
	Discount on bonds Payable	$      91,043
	Bonds payable		$           560,000
	(Issue of bonds at a Discount)

End of answer.

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