Quetzal Energy Inc. issued bonds on January 1, 2017, that pay interest semiannua
ID: 2558521 • Letter: Q
Question
Quetzal Energy Inc. issued bonds on January 1, 2017, that pay interest semiannually on June 30 and December 31. The par value of the bonds is $320,000, the annual contract rate is 8%, and the bonds mature in 10 years. (Use TABLE 14A.1 and TABLE 14A.2.)
Required:
a. For each of these three situations, determine the issue price of the bonds. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)
b. For each of these three situations, prepare the journal entry that would record the issuance, assuming the market interest rate at the date of issuance. (1) 6%, (2) 8%, (3) 10%. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Use PV tables in determining the issue price of the bonds. Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)
1.Record the sale of bonds on original issue date at 6% market interest rate.
2.Record issuance of bond payable at 8% market interest rate.
3.Record issuance of bond payable at 10% market interest rate.
Market rate interest Issue Price of the Bonds (1) 6% (2) 8% (3) 10%Explanation / Answer
190431.62+ 177177.6
367609
173956.22+ 146044.8
320000 rounded
159516.16+ 120604.8
280121
2)
Case -A Case B Case C semiannual interest 320000*.08*6/12= 12800 12800 12800 Semiannual months 10*2=20 20 20 semiannual yield 6*6/12 =3% 8*6/12=4% 10*6/12=5% Issue Price of Bond [PVA3%,20*Interest]+[PVF3%,20*Par value] [PVA4%,20*Interest]+[PVF4%,20*Par value] [PVA5%,20*Interest]+[PVF5%,20*Par value] [14.87747*12800]+[.55368*320000] [13.59033*12800]+[.45639*320000] [12.4622*12800]+[.37689*320000]190431.62+ 177177.6
367609
173956.22+ 146044.8
320000 rounded
159516.16+ 120604.8
280121
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