L M N 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 the 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 made at maturity? B Since stated interest rate market interest rate, we can predict and prove that these bonds will be issued at PAR (Face Value) When we issue the Bonds payable, we promise to pay (1) Cash Interest every quarter Face Value of the Bonds Payable x aurterly stated rate (2) Principal of $40,000 at the end of the oth year 14 Every Quarter we will pay cash interest 15 Annual Market Interest Rate Quarterly Market Interest Rate 17 Annual State interest Rate Quarterly stated interest Rate Number of Quarters Face Value of the Bonds Payable ds payable is issued at PAR No premium or Discount Face Value - Present Value the Bonds Payable Penthede wat Effective Rate Method Prior Carrying Value Quarterly Market interest Rate Effective Interest Discount/Premium Amortired Carrying Value (Prior CV +Discount amortized or - Premium amortired) Initial CV = PV of the Bonds Payable Balance Sheet Presentation Bonds Payable Carrying Value Perted Date Cash Interest 0 1 /1/2016 1 3/31/2016 2 6/30/2016 3 9/30/2016 4 12/31/2016 3/31/2017 6/10/2017 7 9/30/2017 8 12/31/2017 9 3/31/2018 10 5/30/2018 11 9/30/2011 12 12/31/2018 13 /11/2019 14 /2019 15 /10/2019 16 12/31/2019 M 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 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 effective interest rate 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 6 for the We of the bond. B Since stated interest rate market interest rate 2, we can predict and prove that these bonds will be issued at a premium > Face Value) When we issue the fonds payable, we promise to pay (1) Cach interest every semiannual year Face Value of the Band Paybex Seman 2) Principal of 000 at the end of the thea a 25 llective hane Method AR Badem B Present Value of the Bonds Payable The Bonds payable is issued at a premium = Present Value of the Bonds Payable - Face Value Effective Rate Method Prior Carrying Value x Seminal Market terest Rate Effective Interest Premium Amortized Period Carrying Value (Prior CV - Premium amortized) Initial CVPV of the Bonds Payable Date Cash Interest 1/1/2016 6/30/2016 2 12/28/2016 3 6/27/2017 4 12/25/2017 6/24/2018 12/22/2018 7 /21/2019 % 12/19/2019 PAREx 14.7 Bonds Balance Sheet Presentation Bonds Payable Adid Premium on VP Carrying Value Face Value Ex 145 Bonds at premium 148 Bonduedat count