Question

Exercise F-4 Sale of bonds at a discount using present value

Carr Corporation issued $54,000 of 7 percent, 9-year bonds on January 1, Year 1, for a price that reflected an 8 percent market rate of interest. Interest is payable annually on December 31.

To determine the appropriate discount factor(s) using tables, click here to view Tables I, II, III, or IV in the appendix. Alternatively, if you calculate the discount factor(s) using a formula, round to six (6) decimal places before using the factor in the problem.

Required
a. What was the selling price of the bonds? (Round your intermediate calculations and final answer to the nearest dollar amount.)

b. Prepare the journal entry to record issuing the bonds. (Round your intermediate calculations and final answers to the nearest dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)



c. Prepare the journal entry for the first interest payment on December 31, Year 1, using the effective interest rate method. (Round your intermediate calculations and final answers to 2 decimal places. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

a
	Amount	PV factor	Present value
Annual Interest	3780	6.246888	23613
Maturity value	54000	0.500249	27013
Total			50626
Selling price of the bonds = $50626
b
January 1 Year 1	Cash	50626
	Discount on Bonds payable	3374
	Bonds payable		54000
c
December 31, Year 1	Interest expense	4050		=50626*8%
	Discount on Bonds payable		270
	Cash		3780	=54000*7%