Chapter 10, Problem 3E

1.

To determine

Semiannual cash interest payable

Explanation of Solution

Given,
Value of bonds is $800,000.
Rate of interest is 6%.
Time period is 0.5.

Formula to calculate the semiannual cash interest payable,

  $\text{Semiannual cash interest payable}=\left(\begin{array}{l}\text{Value of bonds}\times \text{Rate of interest}\\ \times \text{Time period}\end{array}\right)$

Substitute $800,000 for value of bonds, 6% for rate of interest and 0.5 for time period.

  $\begin{array}{c}\text{Semiannual cash interest payable}=\$800,000\times 6\%\times 0.5\\ =\$24,000\end{array}$

Hence, semiannual cash interest payable is $24,000.

2.

To determine

Number of payments.

Explanation of Solution

Given,
Number of years is 10.
Number of payment in the year is 2.

Formula to calculate the number of payments,

   $\text{Number of payments}=\text{Number of years}\times \text{Number of payment in the year}$

Substitute 10 for number of years and 2 for number of payment in the year.

  $\begin{array}{c}\text{Number of payments}=10\text{years}\times 2\text{payments}\\ =\text{20}\end{array}$

Hence, number of payments are 20.

3.

To determine

Bonds should be issue at par, at discount, and at premium.

Explanation of Solution

Here, the contract rate is less than the market rate. So, the bonds are issued at a discount.

4.

To determine

Price of bonds.

Explanation of Solution

Cash flow	Table	Table value	Amount ($)	Amount ($)
Par value(maturity)	B.1	0.4564	800,000	365,120
Interest (annuity)	B.3	13.5903	24,000	326,167
Price of bonds				691,287

Table (1)

5.

To determine

Journal entry

Explanation of Solution

Date	Account Title and Explanation	Post. Ref.	Debit ($)	Credit ($)
	Cash		691,287
	Discount on bonds payable		108,713
	Bonds payable			800,000
	(To record the sold bonds at discount)

Table (2)

• Cash account is the assets account. Since the cash is received, the value of assets is increased. So, debit the cash account.
• Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which decrease the liabilities of the company. So, debit the discount on bonds payable account.
• Bonds payable account is the liabilities account. Bonds has been sold, which increases the liabilities of the company. So, credit the bonds payable account.