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 STRAGHT LINE 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 for the life of the bond.

Example 14A.2: 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 STRAGHT LINE 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 for the life of the bond. 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 every semiannual year = Face Value of the Bonds Payable x Semiannual stated rate (2) Principal of $40,000 at the end of the 4th year Every period we will pay cash interest Semiannual Market Interest Rate Annual Market Interest Rate 2% Annual Stated Interest Rate 1% FV 4% Semiannual Stated Interest Rate 2% Number of semiannual periods Years Face Value of the Bonds Payable $40,000 Present Value of the Bonds Payable $43,061 The Bonds payable is issued at a premium $3,061 = Present Value of the Bonds Payable - Face Value 800 Total Interest expense = Total Cash Interest - Total Premium S-L Interest Expense Premium Amortized Period Carrying Value (Prior CV - Premium amortized) 43,061 Initial CV = PV of the Bonds Payable 00 vu w no Date Cash Interest 1/1/16 6/30/16 $800 12/28/16 $800 6/27/17 $800 12/25/17 $800 6/24/18 $800 12/22/18 $800 6/21/19 $800 12/19/19 $800 Balance Sheet Presentation: Bonds Payable Add: Premium on B/P Carrying Value mium on BJP 40,000 3,061 43,061 3,061 = Face Value