Example 14.7: On January 1,2016, the Ruffin Corporation issued $40,000 par value, 4% four-year bonds that mature on December 31, 2019 Ruffin 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 required to record interest expense for the first year? Prepare the journal entry to record the maturity of the bonds. Prepare the taccounts for the bond payable and bond premium accounts for the life of the bond. the effective interest rate meth what ournal ent elare 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 everysemiannual year - Face Value of the Bonds Payable x Semiarnua sted ate 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 Annual Stated Interest Rate Semiannual Stated Interest Rate Number of semiannual periods Face Value of the Bonds Payabile 2% 4% Years The Bonds payable is issued at a premium Present Value of the Bonds Payable-Face Value Present Value of the Bonds Payable Annual Market Interest Rate 7Annual Stated Interest Rate 9 Years Semiannual Market Interest Rate Semiannual Stated Interest Rate Number of semiannual periods Face Value of the Bonds Payable Present Value of the Bonds Payable 4% FV 20 21 . The Bonds payable is issued at a premium 23 24 Present Value of the Bonds Payable- Face Value 27 28 29 30 Effective Rate Method Prioe Carrying Value x Seiaal Market Interest Rate Effective Interest Premium Amortized Carrying Value (Prior CV-Premium amortized) Period Date Cash Interest Initial CV a PV of the Bonds Payable 0 1/1/2016 1 6/30/2016 2 12/28/2016 3 6/27/2017 4 12/25/2017 Balance Sheet Presentation Bonds Payable Add: Premium on Carrying Value 32 5 6/24/2018 6 12/22/2018 7 6/21/2019 8 12/19/2015 371 Face Value 148 Bonds insued at discount eesid at PAR Ex 14.7 Bonds issued at Example 14.7: On January 1,2016, the Ruffin Corporation issued $40,000 par value, 4% four-year bonds that mature on December 31, 2019 Ruffin 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 required to record interest expense for the first year? Prepare the journal entry to record the maturity of the bonds. Prepare the taccounts for the bond payable and bond premium accounts for the life of the bond. the effective interest rate meth what ournal ent elare 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 everysemiannual year - Face Value of the Bonds Payable x Semiarnua sted ate 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 Annual Stated Interest Rate Semiannual Stated Interest Rate Number of semiannual periods Face Value of the Bonds Payabile 2% 4% Years The Bonds payable is issued at a premium Present Value of the Bonds Payable-Face Value Present Value of the Bonds Payable Annual Market Interest Rate 7Annual Stated Interest Rate 9 Years Semiannual Market Interest Rate Semiannual Stated Interest Rate Number of semiannual periods Face Value of the Bonds Payable Present Value of the Bonds Payable 4% FV 20 21 . The Bonds payable is issued at a premium 23 24 Present Value of the Bonds Payable- Face Value 27 28 29 30 Effective Rate Method Prioe Carrying Value x Seiaal Market Interest Rate Effective Interest Premium Amortized Carrying Value (Prior CV-Premium amortized) Period Date Cash Interest Initial CV a PV of the Bonds Payable 0 1/1/2016 1 6/30/2016 2 12/28/2016 3 6/27/2017 4 12/25/2017 Balance Sheet Presentation Bonds Payable Add: Premium on Carrying Value 32 5 6/24/2018 6 12/22/2018 7 6/21/2019 8 12/19/2015 371 Face Value 148 Bonds insued at discount eesid at PAR Ex 14.7 Bonds issued at