On January 1, Yankee Company issued $100,000 par value, 4%, 5year bonds (i.e., there were 100 of $1,000 par value bonds in the issue). Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1. Yankee paid $10,000 in underwriting fees. Determine the issue price of the bonds with a 12% market rate of interest and prepare the journal entry to record the bond issue. The issue bond price is $_____.
SOLUTION
Present value computation for I / Y = 6% (12% / 2) and N = 10 (5 years x 2)
N 
I / Y 
PV 
PMT 
FV 
Excel Formula 

Given 
10 
6.00% 
2,000 ($100,000*2%) 
100,000 

Solve For PV 
70559.18 
=PV(0.06,10,2000,100000) 
or
pv = (pmt * pvaf(i,n)) + (fv * pvf(i,n)) (pvaf = present value ordinary annuity factor
pv = ($2,000 * pvaf (6%,10)) +( $100,000*pvf(6%,10) pvf = present value factor refer tables)
pv = ($2000 * 7.36009)+($100,000*0.55839)
pv= $14,720.18 + $ 55,839
pv = $ 70559.18
CASH FLOWS 
AMOUNT 
Selling Price 
$70559.18 
Par Value 
(100,000) 
Discount on Bonds Payable 
$29,440.82 
Account 
Bond Issue Date 

Cash ($70559.18 – $10,000) 
60559.18  
Unamortized Bond Issue Costs 
10,000 

Discount on Bonds Payable 
29,440.82  
Bonds Payable—Par 
100,000 
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