Question: Wasp Inc. is issuing its 4% ten year $5 million bond on July 1, 2004. Wasp will make semiannual interest payment to bondholders on January 1 and July 1 until the mature in 10 years. Current market interest rate is 6%. A) How much money will Wasp receive from issuing its bonds? B) Ignoring your answer above in 9 (a), prepare the journal entry for Wasp recording the issuing of its bonds on July 1, 2004 assuming that the bonds were priced at 102.
Part A
Wasp will receive $5M from issuing the bonds.
Given that Wasp is issuing the bonds at 4% when market interest is at 6% suggests that the company could offer the bonds above par (at a premium), but this is not stated in part A of the question. The assumption therefore is that the bond is issued at par and the company will receive $5M from the bond issue.
Part B
1-Jul-04	Cash	$5,100,000
	Bonds Payable		$5,000,000
	Premium on Bonds Payable		$100,000
	To record sales of bonds at a premium….