13 Example 14.7: On January 1,2016, the Ruffin Corporation issued $40,000 par value, 4%,four-year bonds that mature on Decemb

 

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On January 1,2016, the Ruffin Corporation issued $40,000 par value, 4%, four-year bonds that mature on December 31, 2019. Ruffin will pay interest semiannually on June 30 and December 31. The company's fiscal year ends on December 31. What is the issue price of this bond assuming that the market rate of interest is 2%? What is the journal entry to record the issuance? Prepare an amortization table using the STRAGHT LINE method. What journal entries are required to record interest expense for the first year? Prepare the journal entry to record the maturity of the bonds. Prepare the t-accounts for the bond payable and bond premium accounts for the life of the bond. Since stated interest rate 4% > market interest rate 2%, we can predict and prove that these bonds will be issued at a premium (> Face Value) When we issue the Bonds payable, we promise to pay: (1) Cash Interest every semiannual year = Face Value of the Bonds Payable x Semiannual stated rate (2) Principal of $40,000 at the end of the 4th year Every period we will pay cash interest Annual Market Interest Rate Semiannual Market Interest Rate 2% 1% Annual Stated Interest Rate Semiannual Stated Interest Rate FV 4% 2% Years Number of semiannual periods Face Value of the Bonds Payable $40,000 The Bonds payable is issued at a premium Present Value of the Bonds Payable $3,061 = Present Value of the Bonds Payable - Face Value $43,061 On January 1,2016, the Ruffin Corporation issued $40,000 par value, 4%, four-year bonds that mature on December 31, 2019. Ruffin will pay interest semiannually on June 30 and December 31. The company's fiscal year ends on December 31. What is the issue price of this bond assuming that the market rate of interest is 2%? What is the journal entry to record the issuance? Prepare an amortization table using the STRAGHT LINE method. What journal entries are required to record interest expense for the first year? Prepare the journal entry to record the maturity of the bonds. Prepare the t-accounts for the bond payable and bond premium accounts for the life of the bond. Since stated interest rate 4% > market interest rate 2%, we can predict and prove that these bonds will be issued at a premium (> Face Value) When we issue the Bonds payable, we promise to pay: (1) Cash Interest every semiannual year = Face Value of the Bonds Payable x Semiannual stated rate (2) Principal of $40,000 at the end of the 4th year Every period we will pay cash interest Annual Market Interest Rate Semiannual Market Interest Rate 2% 1% Annual Stated Interest Rate Semiannual Stated Interest Rate FV 4% 2% Years Number of semiannual periods Face Value of the Bonds Payable $40,000 The Bonds payable is issued at a premium Present Value of the Bonds Payable $3,061 = Present Value of the Bonds Payable - Face Value $43,061

Answer rating: 100% (QA)

Answer Issue price of bond 3719212 Explanation Annual market interest rate Semiannual market interes... View the full answer