Question
In: Accounting
Problem # 1. On January 31 2013, Louis Company issued bonds. Bonds data: Maturity (par value):...
Problem # 1. On January 31 2013, Louis Company issued
bonds.
Bonds data:
Maturity (par value): $400,000.
Bond term: 3-years.
Stated interest rate: 8% annually
Market interest rate: 10% annually
Interest is paid semiannually on July 31th and December 31st
of each year.
Required: Calculate the bond selling price
1) Bond selling price = _____________________________
2) Prepare journal entry on January 31, 2013
3) Is this a bond with premium or discount? Explain why.
Solutions
Expert Solution
Answer 1
| Present Value of bond | |||
| Period | Payment | Discounting Factor @ 5% | Present Value |
| 1 | 16000 | 0.952381 | 15238.10 |
| 2 | 16000 | 0.907029 | 14512.47 |
| 3 | 16000 | 0.863838 | 13821.40 |
| 4 | 16000 | 0.822702 | 13163.24 |
| 5 | 16000 | 0.783526 | 12536.42 |
| 6 | 416000 | 0.746215 | 310425.61 |
| Present value of Bond | $ 379,697 | ||
| Basic details | |
| Coupon rate per Period (8%/2) | 4% |
| Face value of bond | 400,000 |
| Market or Discounting rate per Period (10%/2) | 5% |
| Interest paid (400000*4%) | 16000 |
| Payment at end of period with Face value(400000+16000) | 416,000 |
| Interest paid on | Semi-annually |
| Number of payment (3 years * 2 in a year) | 6 |
Answer 2
| Journal entries | |||
| Date | General Journal | Debit | Credit |
| January 31, 2013 | Cash | 379697 | |
| Discount on Bond payable | 20303 | ||
| Bond payable | 400000 | ||
| (To record issued of bond payable at Discount.) | |||
| Present value of Bond | $ 379,697 | ||
| Less: face value of Bond | $ 400,000 | ||
| Discount on Bond payable | $ 20,303 | ||
Answer 3
| Is this a bond with a premium or discount? Explain why. | Discount | ||
| Bond issued at discount. Because of Market interest rate is higher than the Stated interest rate. | |||
ekkarill92 answered 3 years agoRelated Solutions
Problem # 1. On January 31 2013, Louis Company issued bonds. Bonds data: Maturity (par value):...
Problem # 1. On January 31 2013, Louis Company issued
bonds.
Bonds data:
Maturity (par value): $400,000.
Bond term: 3-years.
Stated interest rate: 8% annually
Market interest rate: 10% annually
Interest is paid semiannually on July 31th and December 31st
of each year.
Required: Calculate the bond selling price
1) Bond selling price = _____________________________
2) Prepare journal entry on January 31, 2013
3) Is this a bond with premium or discount? Explain why.
Part 1: On January 1 2018, Louis Company issued bonds with a Par Value of $400,000....
Part 1:
On January 1 2018, Louis Company issued bonds with a Par Value
of $400,000. The coupon interest rate on the bond is 10%, and it
has a maturity of 3 years.
Interest is paid semiannually on June
30th and December 31 of each year.
Required:
Compute the value of the bond assuming the following market
rates of interest:
[5 points]
Value of Bond @ 8% =
_____________________________________
Value of Bond @10% =
_____________________________________
Part 2:...
Part 1: On January 1 2018, Louis Company issued bonds with a Par Value of $400,000....
Part 1:
On January 1 2018, Louis Company issued bonds with a Par Value
of $400,000. The coupon interest rate on the bond is 10%, and it
has a maturity of 3 years.
Interest is paid semiannually on June
30th and December 31 of each year.
Required:
Compute the value of the bond assuming the following market
rates of interest:
[5 points]
Value of Bond @ 8% =
_____________________________________
Value of Bond @10% =
_____________________________________
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