On January 1, a Company Issues Bonds with a Par

question 187

Essay

On January 1, a company issues bonds with a par value of $300,000. The bonds mature in five years and pay 8% annual interest, payable each June 30 and December 31. On the issue date, the market rate of interest for the bonds is 10%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:
$\begin{array}{|l|r|}\hline \text { Present value of an annuity for } 10 \text { periods at } 4 \% & 8.1109 \\\hline \text { Present value of an annuity for } 10 \text { periods at } 5 \% & 7.7217 \\\hline \text { Present value of } 1 \text { for } 10 \text { periods at } 4 \% & 0.6756 \\\hline \text { Present value of } 1 \text { for } 10 \text { periods at } 5 \% & 0.6139 \\\hline\end{array}$

---

Definitions:

Deferred Tax Liability

A tax obligation that a company has incurred but is not yet required to pay, often arising from differences between accounting methods for financial statements and tax purposes.

Associate

A company in which another company owns a significant portion (usually between 20% and 50%) but not a majority stake, providing it with significant influence.

Equity Entries

Accounting transactions that affect the owners' equity account in a company's balance sheet, such as issuing stock or paying dividends.

Parent Entities

Companies that own more than half of the voting rights of another company or have control over it, making the other company a subsidiary.