Bringham Company issues bonds with a par value of 700000 on

Bringham Company issues bonds with a par value of $700,000 on their stated issue date. The bonds mature in 6 years and pay 6% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 8%. (Table B.1, Table B.2, Table B.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. 2 Req 1 to 3 Req 4 Req 5 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.) ble Values are Based on: Cash Flow Par (maturity) value Interest (annuity) Price of bonds Table Value Amount Present Value Req 1 to 3 Req5

Solution

Req 1: Par value of Bonds 700000 Stated annual rate 6% Semi Annual Interst payment 21000 (700000*6%*6/12) Req 2: Period of bonds 6 years Semi annual rest Therefore, Number of payments 12 Req 3: As the market rate is higher thana stated rate, the investor has to forego the interest income. Hence, Bonds are issued at Discount. Rreq 4: Table n = 4% i= 12 Par value 0.6246 700000 437220 Interest 9.3851 21000 197087.1 Price of bonds 634307.1 Req 5: Journal entry for issuance: Cash Account Dr. 634307 Discount on Bonds payable Dr. 65693         Bonds payable 700000