Question

Citywide Company issues bonds with a par value of $66,000 on their stated issue date. The bonds mature in ten years and pay 12% annual interest in semiannual payments. On the issue date, 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. 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.

Answer 1

Ans-1-

Par Value		Semiannual rate	=	Semiannual cash interest payment
$66,000		6%	=	$3,960

2- Number of Payments

Number of Payments

20

(10*2)

3-

Whether the bonds are issued at par, at a discount or premium?

Premium (Because ,Bond Interest Rate is more than the market rate).

4- Table value are based on:-

n=	20
i=	5%
Cash Flow	Time Value	*	Amount	=	Present Value
Par (maturity) Value	0.3769	*	66,000	=	24,875
Interest Annuity	12.4622	*	3,960	=	49,350
Price of Bond					$74,225

5-Journal Entry

Transaction	Account Title and Explanation	Debit ($)	Credit ($)
1	Cash A/c Dr.	74,225
	Bonds Payable A/c		66,000
	Premium on Bonds Payable A/c		8,225
	(To record the issuance of bonds)

Kindly give thumbsup if u like my answer....Thanks!!!