Problem 10-1AA Computing bond price and recording issuance LO C2, P1 Hartford Re

Question

Problem 10-1AA Computing bond price and recording issuance LO C2, P1 Hartford Research issues bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds have a $40,000 par value and an annual contract rate of 10%, and they mature in 10 years. (Table B1, Table B.2, Table B,3, and Table B,4) (Use appropriate factor(s) from the tables provided. Round all table values to 4 decimal places, and use the rounded table values in calculations. Round your 'Present Value' answers to the nearest whole dollar.) Required: Consider each of the following three separate situations 1. The market rate at the date of issuance is 896. (a) Complete the below table to determine the bonds' issue price on January 1, 2017 (b) Prepare the journal entry to record their issuance 2. The market rate at the date of issuance is 10% (a) Complete the below table to determine the bonds' issue price on January 1, 2017. (b) Prepare the journal entry to record their issuance 3. The market rate at the date of issuance is 12%. (a) Complete the below table to determine the bonds' issue price on January 1, 2017 (b) Prepare the journal entry to record their issuance Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1ARequired 1BRequired 2A Required 2B Required 3A Required 3B Complete the below table to determine the bonds' issue price on January 1, 2017, if the market rate at the date of issuance is 8% Table values are based on: 20 4,0% Table Value Present Value Amount Cash Flow Par (maturity) value Interest (annuity) 13.5903$ 2,000 Price of bonds 0.4564 $ 40,00018,256 27,181 $45,437 Required 1A Required 1B>

Explanation / Answer

Principal 40,000 interest 2000 Market interest rate 4% periods to maturity 20 issue price      45,437 1) Calculation of bond issue price Where i= 4.00% t= 20 principal * PV of $1 at 4% for 20 yrs = 40,000 * 0.4564        =      18,256 interest * PV of ordinary annuity at 3%= 2000 * 13.5903 =      27,181 bond issue price      45,437 Table values are based on n= 20 i= 4% Cash table Amount Present flow value Value par(MV) 0.4564 40,000      18,256 intt(annuity( 13.5903 2000      27,181 price of bonds      45,437 Journal entry Date Account titles & explanations Debit Credit 01-Jan cash       45,437 premium on bonds        5,437 bonds payable 40,000 2) Principal 40,000 interest 2000 Market interest rate 5% periods to maturity 20 issue price      40,000 2) Calculation of bond issue price Where i= 5.00% t= 20 principal * PV of $1 at 5% for 20 yrs = 40,000 * 0.3769        =      15,076 interest * PV of ordinary annuity at 5%= 2000 * 12.4622 =      24,924 bond issue price      40,000 Table values are based on n= 20 i= 5% Cash table Amount Present flow value Value par(MV) 0.3769 40,000      15,076 intt(annuity( 12.4622 2000      24,924 price of bonds      40,000 Date Account titles & explanations Debit Credit 01-Jan cash       40,000 bonds payable 40,000 3) Principal 40,000 interest 2000 Market interest rate 6% periods to maturity 20 issue price      35,412 3) Calculation of bond issue price Where i= 6.00% t= 20 principal * PV of $1 at 3% for 20 yrs = 40,000 * 0.3118        =      12,472 interest * PV of ordinary annuity at 3%= 2000 * 11.4699 =      22,940 bond issue price      35,412 Table values are based on n= 20 i= 6% Cash table Amount Present flow value Value par(MV) 0.3118 40,000      12,472 intt(annuity( 11.4699 2000      22,940 price of bonds      35,412 Journal entry Date Account titles & explanations Debit Credit 01-Jan cash       35,412 Discount on bonds         4,588 bonds payable 40,000

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.