Explore BrainMass
Share

Whitefeather Industries Bond Pricing Record Issuance Calculation

On January 1, 2008, Whitefeather Industries issued 300, $1,000 face value bond. The bonds have a five-year life and pay interest at the rate of 10%. Interest is paid semiannually on July 1 and January 1. The market rate on January 1 was 10%.

Required:

1. Calculate the issue price of the bonds and record the issuance of the bonds on January 1 2008.

2. Explain how the issue price would have been affected if the market rate of interest had been higher than 10%.

3. Prepare the journal entry to record the payment of interest on July 1, 2008.

4. Calculate the amount of interest accrued on December 31, 2008.

© BrainMass Inc. brainmass.com July 21, 2018, 3:41 pm ad1c9bdddf

Solution Preview

1. Calculate the issue price of the bonds and record the issuance of the bonds on January 1 2008.

Since the interest rate on bonds (10%) is equal to the market rate (10%), the bonds can be sold at the face value of $1,000. The issue price will therefore be $1,000.
Journal entry:
Dr. Cash A/c ...

Solution Summary

200 words show how to calculate and record issue price of bonds and explain how high market interest rates affect them.

$2.19