Exercise 103A Computing bond interest and price recording bo

Exercise 10-3A Computing bond interest and price; recording bond issuance LO C2 Bringham Company issues bonds with a par value of $600,000 on their stated issue date. The bonds mature in 10 years and pay 6% annual Interest in semiannual payments. On the issue date, the annual market rate for the bonds ls 8%. Table B1, Table B.2. Table B.3. and Table B.4 (Use appropriete factor(S) from the tebles provlded.) 1. What is the amount of each semlannual Interest payment for these bonds? 2. How many semiannual Interest payments will be made on these bonds over thelr 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 thelr Issue date 5. Prepare the journal entry to record the bonds\' Issuance Complete this question by entering your answers in the tabs below Req 1 to 3 Req 4 Req 5 What is the amount of each semiannual interest payment for these bonds? How many semiannual interest payments will be made on these bonds over their life? Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a premium. Semiannual Rate Semiannual cash interest payment Par (maturity) value 00,000 X 3.0% 18,000 Number of payments Whether the bonds are issued at par, at a discount, or at a premium?

Solution

As per policy, only one question is allowed to answer, so answering 10-3A :

10-3A)

1) Semi annual interest payment = $600000 * 6% * 1/2 = $18000

2) Semi annual interest payments during life of bonds = 10 years * 2 half = 20 payments

3 & 4) Price of bond = coupon * PVIFA(4%,20) + Par value * PVIF(4%,20) = 18000 * 13.5903 + 600000 * 0.4564

= 244625.40 + 273840 = $518465.40

The bonds are issued at a discount of = $600000 - $518465.40 = $81534.60

5) Journal Entries :

Date	Accounts Titles	Debit $	Credit $
	Cash	518465.40
	Discount on issue of bonds	81534.60
	Bonds Payable		600000
	(bonds issued at discount)