Queen Energy Inc. issued bonds on January $1,2023,$ 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 $14$A$\mathrm{.}1$ and TABLE $14$A$\mathrm{.}2.)($Use appropriate factor$($s$)$ from the tables provided.$)$

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:

$6\%$

$8\%$

$10\%$

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 was $(1)6\%,(2)8\%,(3)10\%.($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.$)$

Answer rating: 100% (QA)

a To determine the issue price of the bonds we need to calculate the present value of the bonds future cash flows using the given market interest rates Situation 1 Market rate interest 6 Step 1 Calculate the semiannual coupon payment Coupon payment Annual contract rate Par value 2 Coupon payment 8 320000 2 12800 Step 2 Calculate the present value of the bonds future cash flows Using Table 14A1 the present value factor for 10 years at 6 semiannually compounded interest is 06139 Present value Coupon payment Present value factor Present value 12800 06139 785920 Step 3 Calculate the issue price of the bonds Issue price Present value Present value of the par value Issue price 785920 320000 32785920 Situation 2 Market rate interest 8 Step 1 Calculate the semiannual coupon payment Coupon payment 8 320000 2 12800 Step 2 Calculate the present value of the bonds future cash flows Using Table 14A1 the present value factor for 10 years at 8 semiannually compounded interest is 04665 Present value 12800 04665 597120 Issue price 597120 320000 32597120 Situation 3 Market rate interest 10 Step 1 Calculate the semiannual coupon payment Coupon payment 8 320000 2 12800 Step 2 Calculate the present value of the bonds future cash flows Using Table 14A1 the present value factor for 10 years at 10 semiannually compounded interest is 03869 Present value 12800 03869 495120 Issue price 495120 320000 32495120 b Journal entries to record the bond issuance Situation 1 Market interest rate ... View the full answer