A company is issuing $300,000 worth of 5-year bonds on January 1, 2013, bearing an interest rate of 4%, payable annually. Assume that the current market rate of interest is 5%.
a) Will the bonds be issued at a discount or at a premium?
b) Calculate the value of the resulting discount or premium
c) Record the journal entry to reflect the sale of bonds and the appropriate discount or premium.
Note that the present value factor for the principal is 0.7835 (5%, 5-years) and that the present value factor for the recurring interest payment is 4.3295 (5%, 5-years).