Question

Quetzal Energy Inc. issued bonds on January 1, 2017, that pay interest semiannually on June 30 and December 31. The par value of the bonds is $320,000, the annual contract rate is 8%, and the bonds mature in 10 years. (Use TABLE 14A.1 and TABLE 14A.2.)

Required:
a. For each of these three situations, determine the issue price of the bonds. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

	Market rate interest	Issue Price of the Bonds
(1)	6%
(2)	8%
(3)	10%

b. For each of these three situations, prepare the journal entry that would record the issuance, assuming the market interest rate at the date of issuance. (1) 6%, (2) 8%, (3) 10%. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Use PV tables in determining the issue price of the bonds. Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

1.Record the sale of bonds on original issue date at 6% market interest rate.

2.Record issuance of bond payable at 8% market interest rate.

3.Record issuance of bond payable at 10% market interest rate.

Answer 1

	Case -A	Case B	Case C
semiannual interest	320000*.08*6/12= 12800	12800	12800
Semiannual months	10*2=20	20	20
semiannual yield	6*6/12 =3%	8*6/12=4%	10*6/12=5%
Issue Price of Bond	[PVA3%,20*Interest]+[PVF3%,20*Par value]	[PVA4%,20*Interest]+[PVF4%,20*Par value]	[PVA5%,20*Interest]+[PVF5%,20*Par value]
	[14.87747*12800]+[.55368*320000]	[13.59033*12800]+[.45639*320000]	[12.4622*12800]+[.37689*320000]
	190431.62+ 177177.6 367609	173956.22+ 146044.8 320000 rounded	159516.16+ 120604.8 280121

2)

Date	Account	Debit	credit
Jan 1 2017
case A	Cash	367609
	Premium on bond payable		47609
	Bond payable		320000
B	cash	320000
	Bond payable		320000
C	cash`	280121
	Discount on bond payable	39879
	Bond payable		320000