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Cali Hardware issued $400,000 of 8%, 20-year bonds. The bonds pay interest semiannually. The market interest...

Cali Hardware issued $400,000 of 8%, 20-year bonds. The bonds pay interest semiannually. The market interest rate at the time of issuance was 10%.

Make the journal entry to record the transaction of the issuance of the bonds. Please show all your calculations (i.e., showing me clearly how you calculated the total and related pieces of the total, including the factor from the table). Also, please show your answers carried out to 2 decimal places.

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Answer #1

Solution:

Computation of bond price
Table values are based on:
n= 40
i= 5.00%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.14205 $400,000.00 $56,820
Interest (Annuity) 17.15909 $16,000.00 $274,545
Price of bonds $331,365
Journal Entries - Cali Hardware
Event Particulars Debit Credit
1 Cash Dr $331,365.00
Discount on bond payable Dr $68,635.00
       To Bond Payable $400,000.00
(To record issue of bond at discount)
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