Homework Help Save& Exit Subm Check my work Citywide Company issues bonds with a

ID: 2570516 • Letter: H

Question

Homework Help Save& Exit Subm Check my work Citywide Company issues bonds with a par value of $ annual interest in semiannual payments and Iable B.4) (Use appropriate factoris) from the tables provided) and pay 9% the bonds is 8% aableB1 labieB2. Table On the issue date, the annual market rate for 1. What is the amount of each semiannual interest payment for these bonds? 2. How many semiannual interest payment 3. Use the interest 4. Compute the price of the bonds as of their issue date 5. Prepare the journal entry to record the bonds issuance. s will be made on these bonds over their life? rates g oiven to select whether the bonds are issued at par, at a discount, or at a premium Complete this question by entering your answers in t he tabs below. Req 1 to 3Req 4 What is the amount of each semiannual interest payment for these bonds? Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a Req s many semiannual interest payments will be made on these bonds over their life? umbar of pormerts bonds are issued at par, at a discount C Prev 6of 9 Next

Explanation / Answer

Solution:

1) Semi Annual Interest Payment = Par Value of the bonds x Stated Interest Rate x ½

= 76,000*9%*1/2

= $3,420

2) Number of Semi Annual Interest Payment = 10 Years x 2 times interest payable in a year = 20

3) Since the market interest rate is 8% which is lower than the Stated Interest Rate, the bonds are issued at PREMIUM.

Semi Annual Market Interest Rate (R) = 8/2 = 4%

Issue Price of the bonds = Semi Annual Coupon Interest x Present Value ordinary annuity factor at 4% for 20 periods + Par Value x Present Value interest factor at 4% for 20 periods

= (3420*13.5903) + (76,000*0.45639)

= $81,164.50

Note --- Issue Price may be different due to rounding off present value factor..

5) Journal Entry to record the bond issuance

Account Titles and Explanation

Debit

Credit

Cash

$81,165

Bonds Payable

$76,000

Premium on Bonds Payable

$5,165

Present Value ordinary annuity factor at 4% for 20 periods = (1 – 1/(1+0.04)20) / 0.04 = 13.5903

Present Value interest factor at 4% for 20 periods = 1/(1+0.04)20 = 0.45639

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