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Bringham Company issues bonds with a par value of $800,000 on their stated issue date.


Bringham Company issues bonds with a par value of $800,000 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 is 8%.


 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 determine whether the bonds are issued at par, at a dis premium.

 4. Compute the price of the bonds as of their issue date. 

 5. Prepare the journal entry to record the bonds' issuance.


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Answer #1

1. $24,000

Face Value of the Bonds = $800,000

Rate of interest = 6%

Annual interest = $48,000

Semiannula Interest = $24,000

2. As thetenure of the bond is ten years there will be 20 semiannual interest payments.

3. $696,715

A. Market rate of iterest =8%

PV factor of $1 received after 10 years at 8% = 0.463

Present Value of the matury value of the bond = 800,000 x 0.463 = $370,555

B. Semiannual interest = $24,000

PV for $1 annuity to received for 20 terms @4%(half of 8%) = 9.818

PResent value of the semiannual interest = 24,000 X 13.590 = $326,160

Price of the bond = $370,555+$326,160 = $ 696,715

4.

Account Title Debit Credit
Cash 696715
Discount on bond issue 103285
Bonds Payable 800000
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