How do you record the issuance of bonds?

Accounting Issue price of bonds need help?

• Jester Company issues bonds with a par value of $700,000 on their stated issue date. The bonds mature in 6 years and pay 6% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 8% Semiannual Interest Payment = $21000 Number of Payments = 12 Compute the price of the bonds as of their issue date. Issue price of bonds? Prepare the journal entry to record the bonds’ issuance. (Dr)Cash ??? (Dr)Discount on bonds payable ??? (Cr)Bonds payable = 700,000

• Answer:

  To calculate the Price of the bond, we’ll use the following symbols: (pv1,i,n) = present value of $1 discounted at i%, n periods from the present (pva,i,n) = present value of an annuity of $1 discounted at i%, for n periods The price of the bond is $700,000(pv1, 4%, 12) + 6%(0.5)($700,000)(pva, 4%, 12) Using the npv tables attached, this = $700,000(0.62460) + 6%(0.5)($700,000) (9.38507) = $437,220 + $197,086.47 = $634,306.47 Prepare the journal entry to record the bonds’ issuance. Dr Cash $634,306 Dr Discount on bonds payable $65,694 Cr Bonds payable $700,000 Answers can vary by a very small amount, depending on the number of decimal points you work with.