MNO Example 14.8: 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. On the date Ruffin issued the bonds, the market rate of interest was 6%. The company's fiscal year ends on December 31. What Is the issue price of this bond? Prepare the journal entry to record the issuance. Prepare an amortization schedule over the four-year period using the effective interest rate method. Prepare the journal entries to record the interest entries for the first year. Prepare the journal entry to record the payment of the bonds at maturity. Prepare the t-accounts for the bond payable and bond discount accounts for the life of the bond Since wted Interest rate market interest rate , we can predict and prove that these bonds will be issued at a discount Face Value) When we in the Bonds payable, we promise to pay (1) Ca s tevery semiannual year Face Value of the Bands Payex Semanal statedrale (2) Principal of $40,000 at the end of the the year Every perd we will pay cash M of the Bonds Payable Walue the Bonds Payable Face Value of the Bonds Payable Present Value of the Bonds Payable The Bonds payable is issued at a discount -Face Value - Present Value of the Bonds Paya Effective Rate Method Prior Carrying Value x Semanal Market rest Rate Effective Interest Discount Amortized Period 0 Carrying Value (Prior CV Discount amortized) Initial cy - PV of the Bonds Payable REARH Date Cash Interest 1 /1/2016 1 6/30/2016 2 12/28/2016 3 6/27/2017 4 12/25/2012 5 6 /24/2018 6 12/22/2018 7 21/2019 8 12/19/2010 Balance Sheet Presenta Bonds Payable Less: Discount on BP CyValue Face Value