Hartford Research issues bonds dated January 1, 2008, that pay interest semiannually on June 30 and December 31. The bonds have a $40,000 par value, an annual contract rate of 10%, and mature in 10 years.
For each of the following three separate situations, (a) determine the bonds’ issue price on January 1, 2008, and (b) prepare the journal entry to record their issuance.
1. Market rate at the date of issuance is 8%
. Market rate at the date of issuance is 10%
Market rate at the date of issuance is 12%
| 1. Market rate at the date of issuance is 8% | |||
| FV (Face Value of Bond) | -40000 | ||
| PMT (Interest Per Period) | -2000 | ||
| N (Number of Periods) | 20 | ||
| Market Rate | 4.00% | ||
| PV (Issue Price) | $45,436.13 | ||
| Issue price of Bond is $45436.13 | |||
| Journal Entry | |||
| January 1,2008 | |||
| Cash Account …………………………………Dr. | $45,436.13 | ||
| To Bond Payable …………………………Cr. | $40,000.00 | ||
| To Premium on Bonds Payable ……….Cr. | $5,436.13 | ||
| 2. Market rate at the date of issuance is 10% | |||
| FV (Face Value of Bond) | -40000 | ||
| PMT (Interest Per Period) | -2000 | ||
| N (Number of Periods) | 20 | ||
| Market Rate | 5.00% | ||
| PV (Issue Price) | $40,000.00 | ||
| Issue price of Bond is $40,000 | |||
| Journal Entry | |||
| January 1,2008 | |||
| Cash Account …………………………………Dr. | $40,000.00 | ||
| To Bond Payable …………………………Cr. | $40,000.00 | ||
| 3. Market rate at the date of issuance is 12% | |||
| FV (Face Value of Bond) | -40000 | ||
| PMT (Interest Per Period) | -2000 | ||
| N (Number of Periods) | 20 | ||
| Market Rate | 6.00% | ||
| PV (Issue Price) | $35,412.03 | ||
| Issue price of Bond is $35,412.03 | |||
| Journal Entry | |||
| January 1,2008 | |||
| Cash Account …………………………………Dr. | $35,412.03 | ||
| Discount on Issue of Bond………………….Dr. | $4,587.97 | ||
| To Bond Payable …………………………Cr. | $40,000.00 | ||
