Question

Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds have a $40,000 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. Round your 'Present Value' answers to the nearest whole dollar.)
  
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.

Complete the below table to determine the bonds' issue price on January 1, 2017, if the market rate at the date of issuance is 8%.

	Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

Journal Entry: Record the issue of bonds with a par value of $40,000 on January 1, 2017. Assume that the market rate of interest at the date of issue is 8%.

Complete the below table to determine the bonds' issue price on January 1, 2017, if the market rate at the date of issuance is 10%.

	Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

Journal Entry: Record the issue of bonds with a par value of $40,000 on January 1, 2017. Assume that the market rate of interest at the date of issue is 10%.

Complete the below table to determine the bonds' issue price on January 1, 2017, if the market rate at the date of issuance is 12%.

	Table values are based on: n = i = Cash Flow Table Value Amount Present Value Par (maturity) value Interest (annuity) Price of bonds

Journal Entry: Record the issue of bonds with a par value of $40,000 on January 1, 2017. Assume that the market rate of interest at the date of issue is 12%.

Answer 1

Concepts and reason

Bonds payable: It is an instrument issued by an entity which may be either corporate or government for raising fund by paying fixed or variable interest for the term of the bond. It can either be issued at discount or at premium.

Fundamentals

Journal entry: Journal entry means recording of a transaction which are related to the business of the company in the records of the company.

Present value: Sum of money which is receivable or payable at a future date is discounted to arrive at current value. This value is the present value of future sum of money.

Present value of annuity: Sum of money which is receivable or payable at a different future dates is discounted to arrive at current value. This value is the present value of future value of annuity.

There will be no discount or premium on bonds payable when market rate is 10%.

Ans: Part 1a

Part 1b

Part 2a

Part 2b

Part 3a

Part 3b