Tingham Village issued 500 five-year bonds on July 1, 2015. The interest payments are due semiannually (January

Question:

Tingham Village issued 500 five-year bonds on July 1, 2015. The interest payments are due semiannually (January 1 and July 1) at an annual rate of 6 percent. The effective interest rate on the bonds is 8 percent. The face value of each bond is $1,000.

a. Prepare the journal entry that would be recorded on July 1, 2015, when the bonds are issued.

b. Prepare the journal entry that would be recorded on December 31, 2015.

c. Compute the balance sheet value of the bond liability as of December 31, 2015.

d. Compute the present value of the bond’s remaining cash flows as of December 31, 2015, using an effective interest rate of 8 percent. Explain the relationship between the balance sheet value and the present value.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...