327 Example 14.6: 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 quarterly on March 31, June 30, September 30, and December 31. The company's fiscal year ends on December 31. What is the issue price of this bond assuming : he market rate of interest is 4%? What is the journal entry to record the bond issue? what are the journal entries to record the first year's interest? what entry is 4 made at maturity? 8 Since stated interest rate - market interest rate, we can predict and prove that these bonds will be issued at PAIR (Face Value) 10 When we issue the Bonds payable, we promise to pay: (1) Cash Interest every quarter Face Value of the Bonds Payable x Qaurterly stated rate (2) Principal of $40,000 at the end of the 4th year 12 13 14 1 5 Annual Market Interest Rate Quarterly Market Interest Rate Every Quarter we will pay cash interest FV Quarterly Stated Interest Rate 17 Annual Stated Interest Rate 18 19 Years Number of Quarters Face Value of the Bonds Payable The Bonds payable is issued at PAR. No premium or Discount Present Value of the Bonds Payable Face Value- Present Value of the Bonds Payable N C Present Value of the Bonds Payable Face Value- Present Value of the Bonds Payable Effective Rate Method Prior Carrying Value x Quarterly Market Interest Rate Period Date Cash Interest Effective Interest Discount/Premium Amortized Carrying Value (Prior CV + Discount amortized or - Premium amortized) o 1/1/2016 1 3/31/2016 2 6/30/2016 3 9/30/2016 4 12/31/2016 5 3/31/2017 6 6/30/2017 7 9/30/2017 8 12/31/2017 9 3/31/2018 10 6/30/2018 11 9/30/2018 12 12/31/2018 13 3/31/2019 14 6/30/2019 15 9/30/2019 16 12/31/2019 Initial CV PV of the Bonds Payable Balance Sheet Presentation: Bonds Payable Carrying Value Face Value 14.6 Bonds Issued at PAR Ex 14.7 Bonds issued at premium Ex148 Bonds issued at discount here to search