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PROBLEM SET A Round dollar amounts to the nearest whole dollar. Assume no reversing entries are used Hartford Research issues bonds dated January 1,2013, 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. Problem 10-1A Computing bond price and recording issuance P1 Required For each of the following three separate situations, (a) determine the bonds’ issue price on January 1 2013, and (b) prepare the journal entry to record their issuance 1. The market rate at the date of issuance is 8%. 2. The market rate at the date of issuance is 10%. 3. The market rate at the date of issuance is 12%. Check (1) Premium, $4,537 3) Discount, $4,588
Expert Answer
a. $40000 (present value 5%, for 20 years) + 5% * $40000 * (present value of annuity 5% for 20 years)
= $40000 (0.45639) + $2000 (13.59033)
= $18255.6 + $27180.66
= $45436.26
Cash $45436.26
To Bond premium $5436.26
To Bonds payable $40000
b. $40000 * present value of 5% for 20 years + 5% * $40000 * present value of annuity of 5% for 20 years
= $40000 * 0.37689 + $2000 * 12.46221
= $15075.6 + $24924.42
= $40000.
Cash $40000
To Bonds payable $40000
c. $40000 * present value of 6% for 20 years + 5% * $40000 * present value of annuity of 6% for 20 years
= $12472 + $22939.84
= $35411.84
Cash $35411.84
Bond discount $4588.16
To Bonds payable $40000.
