Bringham Company issues bonds with a par value of $560,000 on
their stated issue date. The bonds mature in 8 years and pay 7%
annual interest in semiannual payments. On the issue date, the
annual market rate for the bonds is 10%. (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.
Answer
1.
SemiAnnual Interest Payments = Face Value * Interest Rate * 6/12 months
= $560,000 * 7% * 6/12 months
SemiAnnual Interest Payments = $19,600
2.
SemiAnnual Interest Payments = Bonds life (In Years) * 2 Semi period per year
= 8 Years * 2 SemiPeriod per year
SemiAnnual Interest Payments = 16
3.
Company is paying 7% Interest Rate but Market rate is 10%, so Company is paying less interest, So they must have issued Bonds at Discount.
4.
5.
Bank 
468,962.74 

Discount on Bonds Payable 
91,037.26 

7% Bonds Payable 
560,000 

(Being bonds issued at discount) 
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