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Calculating Annual Contract Rate

Find attached problem 14-1a can not get past calculating bonds.
QS 14-1
Bond terminology
C1
Enter the letter of the description A through H that best fits each term 1 through 8.
A. Records and tracks the bondholders' names.
B. Is unsecured; backed only by the issuer's credit standing.
C. Has varying maturity dates for amounts owed.
D. Identifies rights and responsibilities of the issuer and the bondholders.
E. Can be exchanged for shares of the issuer's stock.
F. Is unregistered; interest is paid to whoever possesses them.
G. Maintains a separate asset account from which bondholders are paid at maturity.
H. Pledges specific assets of the issuer as collateral.

1. ___B____ Debenture 5. __ G_____ Sinking fund bond
2. ___D____ Bond indenture 6. ___E____ Convertible bond
3. ___F____ Bearer bond 7. ___H___ Secured bond
4. ___A____ Registered bond 8. __ C_____ Serial bond
Round dollar amounts to the nearest whole dollar. Assume no reversing entries are used.
Stowers Research issues bonds dated January 1, 2005,
that pay interest semiannually on June 30 and December 31.
The bonds have a $20,000 par value,
an annual contract rate of 10%, and mature in 10 years.
Required
For each of the following three separate situations,
(a) determine the bonds' issue price on January 1, 2005, and
(b) prepare the journal entry to record their issuance.

1. Market rate at the date of issuance is 8%.
2. Market rate at the date of issuance is 10%.
3. Market rate at the date of issuance is 12%.

HEATHROW

Bonds issued, face value $2,000,000
Annual interest 6%
Maturity in years 15
Issuance price 1,728,224
Issue price for Part 6 $2,447,990

Check figures:
(3) $2,071,776
(4) 12/31/2005 carrying value 1,764,460
HEATHROW
General Journal
Part 1.
Trans.
Date Account Titles no. Debit
2004
Jan 1 Cash
Discount on Bonds Payable
Bonds Payable

Part 2.

Cash payment
Straight-line discount amortization
Bond interest expense

Part 3.

Thirty payments of $60,000
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense

or:

Thirty payments of $60,000
Plus discount
Total bond interest expense

Part 4.
HEATHROW

Unamortized Carrying
Semiannual Interest Period Discount Value

01/01/2004
30/06/2004
31/12/2004
30/06/2005
31/12/2005

HEATHROW
General Journal
Part 5.
Trans.
Date Account Titles no. Debit
2004
Jun 30 Bond Interest Expense
Discount on Bonds Payable
Cash

Dec 31 Bond Interest Expense
Discount on Bonds Payable
Cash

HEATHROW
General Journal
Part 6-1.
Trans.
Date Account Titles no. Debit
2004
Jan 1 Cash
Premium on Bonds Payable
Bonds Payable

Part 6-2.

Cash payment
Straight-line premium amortization
Bond interest expense

Part 6-3.

Thirty payments of $60,000
Par value at maturity
Total repaid
Less amount borrowed
Total bond interest expense

or:

Thirty payments of $60,000
Less premium
Total bond interest expense

Part 6-4.
HEATHROW

Unamortized Carrying
Semiannual Interest Period Premium Value

01/01/2004
30/06/2004
31/12/2004
30/06/2005
31/12/2005

HEATHROW
General Journal
Part 6-5.
Trans.
Date Account Titles no. Debit
2004
Jun 30 Bond Interest Expense
Premium on Bonds Payable
Cash

Dec 31 Bond Interest Expense
Premium on Bonds Payable
Cash

Attachments

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HEATHROW
General Journal
Part 1.
Trans.
Date Account Titles no. Debit Credit
2004
Jan 1 Cash 1,728,224
Discount on Bonds Payable 271,776
Bonds Payable 2,000,000

Part 2.

Cash payment $60,000
Straight-line discount amortization 9,059 The discount is amortized over 30 periods
Bond interest expense 69,059

Part 3.

Thirty payments of $60,000 $1,800,000
Par value at maturity 2,000,000
Total repaid $3,800,000
Less amount borrowed 1,728,224
Total bond interest expense $2,071,776 «- Correct!

or:

Thirty payments of $60,000 $1,800,000
Plus discount 271,776 ...

Solution Summary

The solution explains various questions relating to bond accounting and bond calculations

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