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1.
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Hartford Research issues bonds dated January 1, 2015, that pay interest semiannually on June
30 and December 31. The bonds have a $38,000 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, 2015.
Table values are based on:
n =
20
i =
4.0%
Cash Flow Table Value Amount Present
Value
Par (maturity) value
0.4564
$ 38,000 $ 17,343
Interest (annuity)
13.5903
$ 1,900
25,822
Price of bonds $ 43,165
(b)Prepare the journal entry to record their issuance.
No Date General Journal Debit Credit
1 Jan 01,
2015
Cash
43,165
Premium on bonds payable
5,165
Bonds payable
38,000
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, 2015.
Table values are based on:
n =
20
i =
5.0%
Cash Flow Table Value Amount Present
Value
Par (maturity) value
0.3769
$ 38,000 $ 14,322
Interest (annuity)
12.4622
$ 1,900
23,678
Price of bonds $ 38,000
(b)Prepare the journal entry to record their issuance.
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No Date General Journal Debit Credit
1 Jan 01,
2015
Cash
38,000
Bonds payable
38,000
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, 2015.
Table values are based on:
n =
20
i =
6.0%
Cash Flow Table
Value Amount Present
Value
Par (maturity) value
0.3118
$ 38,000
$ 11,848
Interest (annuity)
11.4699
$ 1,900
21,793
Price of bonds $ 33,641
(b)Prepare the journal entry to record their issuance.
No Date General Journal Debit Credit
1 Jan 01,
2015
Cash
33,641
Discount on bonds payable
4,359
Bonds payable
38,000
eBook & Resources
eBook:
Prepare
entries
to
record
bond
issuance
and
interest
expense .
References
Expanded table Difficulty: 2 Medium Learning Objective: 10-P1 Prepare entries to record bond
issuance and interest
expense.
Hartford Research issues bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds have a $38,000
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%.
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(a)Complete the below table to determine the bonds' issue price on January 1, 2015.
Table values are based on:
n = 20
i = 4.0%
Cash Flow Table Value Amount Present Value
Par (maturity) value
0.4564
+/-0.0001
$
38,000
$ 17,343+/-
1
Interest (annuity) 13.5903+/-0.0001 $
1,900
25,822+/-
1
Price of bonds $ 43,165+/-
1
(b)Prepare the journal entry to record their issuance.
No Date General Journal Debit Credit
1 Jan 01, 2015 Cash 43,165+/-
1
Premium on bonds payable 5,165+/-1
Bonds payable 38,000
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, 2015.
Table values are based on:
n = 20
i = 5.0%
Cash Flow Table Value Amount Present Value
Par (maturity) value
0.3769
+/-0.0001
$ 38,000 $ 14,322+/-1
Interest (annuity) 12.4622+/-0.0001 $ 1,900 23,678+/-1
Price of bonds $ 38,000+/-1
(b)Prepare the journal entry to record their issuance.
No Date General Journal Debit Credit
1 Jan 01, 2015 Cash 38,000+/-
1
Bonds payable 38,000+/-
1
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, 2015.
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Table values are based on:
n = 20
i = 6.0%
Cash Flow Table Value Amount Present Value
Par (maturity) value
0.3118
+/-0.0001
$
38,000
$ 11,849+/-
1
Interest (annuity) 11.4699+/-0.0001 $ 1,900 21,793+/-
1
Price of bonds $ 33,642+/-
1
(b)Prepare the journal entry to record their issuance.
No Date General Journal Debit Credit
1 Jan 01, 2015 Cash 33,642+/-1
Discount on bonds payable 4,358+/-1
Bonds payable 38,00
0
Explanation:
1(a)
Cash Flow Table
Value*
Amount Present
Value
Par value 0.4564 $ 38,000 $ 17,343
Interest (annuity) 13.5903 1,900*
*
25,822
Price of bonds $ 43,165
Bond premium $ 5,165
* Table values are based on a discount rate of 4% (half the annual market rate)
and 20 periods (semiannual payments).
** $38,000 × 0.10 × ½ = $1,900
2(a)
Cash Flow Table
Value*
Amount Present
Value
Par value 0.3769 $ 38,000 $ 14,322
Interest (annuity) 12.4622 1,900 23,678
Price of bonds $ 38,000
* Table values are based on a discount rate of 5% (half the annual market rate) and 20
periods (semiannual payments). (Note: When the contract rate and market rate are the
same, the bonds sell at par and there is no discount or premium.)
3(a)
Cash Flow Table
Value*
Amount Present
Value
Par value 0.3118 $ 38,000 $ 11,849
Interest (annuity) 11.4699 1,900 21,793
Price of bonds $ 33,642
Bond discount $ 4,358
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* Table values are based on a discount rate of 6% (half the annual market rate)
and 20 periods (semiannual payments).
