Bringham Company issues bonds with a par value of $580,000 on their stated issue

Question

Bringham Company issues bonds with a par value of $580,000 on their stated issue date. The bonds mature in 10 years and pay 10% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. Clable lable Table 3 and Table B 4) (Use appropriate factor(s) from the tables provided.) 1. What is the amount of each semiannual interest payment for these bonds? 2. How many semiannual interest payments will be made on these bonds over their life? 3. Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a premium. 4. Compute the price of the bonds as of their issue date. 5. Prepare the journal entry to record the bonds' issuance Complete this question by entering your answers in the tabs below Reg 1 to 3 Req4 Req S Compute the price of the bonds as of their issue date. (Round all table values to 4 decimal places, and use the rounded table values in calculations. Round intermediate calculations to the nearest dollar amount.) Table Values are Based on: n= sh Flow Par (maturity) value Interest (annuity) Price of bonds Table Value Amount Present Value S 580.000

Explanation / Answer

Par value of bond

580000

annual coupon rate

10%

maturity period

10 years

1-

amount of interest payment per semiannual period

580000*5%

29000

2-

no of payment to be made in maturity period = semiannual period

10*2

20

3-

Bonds are issued at discount

4-

Issue price of bond

interest*PVAF + face value *PVF

29000*11.4699 + 580000*.31180

513471.1

PVAF at 6% for 20 semiannual period

1-(1+r)^-n / r

1-(1.06)^-20 / .06

11.4699

PVF at 6% at 20th semiannual period

1/(1+r)^n

1/1.06^20

0.3118047

5-

date

explanation

debit

credit

1-

cash

513471.1

discount on bonds payable

66528.9

bonds payable

580000

period

beginning balance

debit interest expense

debit notes payable

credit cash

ending balance

2015

34000.0

1700.0

7888.4

9588.4

26111.6

2016

26111.6

1305.6

8282.8

9588.4

17828.8

2017

17828.8

891.4

8697.0

9588.4

9131.8

2018

9131.8

456.6

9131.8

9588.4

0.0

PMT

PV*r /1-(1+r)^-n

34000*.05 / 1-(1.05)^-4

1700/.17729

9558.4

Par value of bond

580000

annual coupon rate

10%

maturity period

10 years

1-

amount of interest payment per semiannual period

580000*5%

29000

2-

no of payment to be made in maturity period = semiannual period

10*2

20

3-

Bonds are issued at discount

4-

Issue price of bond

interest*PVAF + face value *PVF

29000*11.4699 + 580000*.31180

513471.1

PVAF at 6% for 20 semiannual period

1-(1+r)^-n / r

1-(1.06)^-20 / .06

11.4699

PVF at 6% at 20th semiannual period

1/(1+r)^n

1/1.06^20

0.3118047

5-

date

explanation

debit

credit

1-

cash

513471.1

discount on bonds payable

66528.9

bonds payable

580000

period

beginning balance

debit interest expense

debit notes payable

credit cash

ending balance

2015

34000.0

1700.0

7888.4

9588.4

26111.6

2016

26111.6

1305.6

8282.8

9588.4

17828.8

2017

17828.8

891.4

8697.0

9588.4

9131.8

2018

9131.8

456.6

9131.8

9588.4

0.0

PMT

PV*r /1-(1+r)^-n

34000*.05 / 1-(1.05)^-4

1700/.17729

9558.4

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