Need help figuring out bonds Brian Wood Production Company is issuing $250,000 o

Question

Need help figuring out bonds

Brian Wood Production Company is issuing $250,000 of ten year, $1,000 face value bond.

The bonds carry a 9.5 percent interest rate paid annually.

a. How much total cash interest will investors receive each year?

$950?

b. Prepare the journal entry to issue the bonds if they are sold at

1) 100

2) 97

3) 102

?

c. For items (1), (2), and (3) in part (b), indicate whether the bonds were sold at a premium, discount, or face value and what that means about the relationship between the stated rate of interest and the market rate of interest.

d. For items (1), (2) and (3) in part (b), how much will the investors receive at maturity?

Explanation / Answer

250,000*.095= 23,750 (total cash, not each individual bond).

1) DR cash 250,000

   CR Bonds Payable   250,000

2) DR Cash 242,500

    DR Discount on Bonds 7,500

      CR Bonds Payable            250,000

3) Cash   255,000

    CR Bonds Payable   250,000

     CR Premium on Bonds      5,000

1) Face value    no difference

2) Discount stated rate less than market rate

3) Premium stated rate greater than market rate.

All will receive 250,000 at maturity.

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

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