Computing bond price and recording issuance P1 Flagstaff Systems issues bonds dated January 1, 2016, that pay June 30 and December 31. The bonds have a $90,000 par value and an annual contract rate interest semiannually on of 12%, and they mature in five years. Required For each of the following three separate situations,(a) determine the bonds\' issue price on January 1 2013 and (b) prepare the journal entry to record their issuance 1. 2. The market rate at the date of issuance is 10%. The market rate at the date of issuance is 14% BRIEF EXPLANATION REQUIRED FOR THE TWO JOURNAL ENTRIES Solution Assumption \"Bond is repayable at par i.e $ 90,000 1. When Market Interest Rate is 10% (a) Issue Price of the Bond:- Par Value of the Bond = $90,000 Maturity= 5 Years Interest Rate is 12% payable semi annualy, so interest amount = 12% of $90,000 *6/12 =$ 5,400 Bond\'s Issue Price = Present Vlaue = PVAF (5%,10) * $5,400 + PVIF (5%,10) * $ 90,000 = 7.7217 * $ 5400 + 0.6139* $ 90,000 = $ 41,697 + $ 55,251 =$ 96,948 (b) Journal Entry:- On January 1 2016 at the time of issuance Bank/ Cash......................................Debit $96,948 12% Bonds......................................Credit $96,948 Also the Interest Expense for 1st Year would be 10% of $96,948 = $ 9,695 2. When Market Interest Rate is 14% (a) Issue Price of the Bond:- Par Value of the Bond = $90,000 Maturity= 5 Years Interest Rate is 12% payable semi annualy, so interest amount = 12% of $90,000 *6/12 =$ 5,400 Bond\'s Issue Price = Present Value =PVAF (7%,10) * $5,400 + PVIF (7%,10) * $ 90,000 = 7.0236 * $ 5400 + 0.5083 * $ 90,000 = $ 37,927 + $ 45,747 =$ 83,674 (b) Journal Entry:- On January 1 2016 at the time of issuance Bank/ Cash......................................Debit $ 83,674 12% Bonds......................................Credit $ 83,674 Also the Interest Expense for 1st Year would be 14% of $83,674 = $ 11,714.

1. d. Which of the following accounts should be reviewed by the auditors to gain reasonable
assurance that additions to property, plant, and equipment are not understated? (1) Depreciation.
(2) Accounts Payable. (3) Cash. (4) Repairs.
Solution
Correct Answer (4) Repairs
Reason
Sometimes there may be errors in analyzing the type of transaction as to whether it is of capital
nature or revenue nature. An amount which is required to be added to assets accounts and by
mistake is debited to repairs will understate the value of property, plant, and equipment. The
Repairs accounts need to be scrutinized properly and every debits must be checked to see
whether they are appropriate or not.