Question
In: Finance
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
| n = 6 | |||||||||
| I = 5% | |||||||||
| Cashflows | Amount | PVF | Present value | ||||||
| Semi Annual Interest (400000*8%*6/12) | 16000 | 5.07569 | 81211.04 | ||||||
| Principal | 400000 | 0.746215 | 298486 | ||||||
| Price of bonds | 379697 | ||||||||
| Journal entry: | |||||||||
| Date | Accounts title and explanations | Debit $ | Credit $ | ||||||
| 31.01.13 | Cash account | 379697 | |||||||
| Discount on Bonds Payable | 20303 | ||||||||
| Bonds Payable | 400000 | ||||||||
| The Bonds are issed at discount because, the market rate prevailing is more than the rate company is paying. | |||||||||
jeff jeffy 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% =
_____________________________________
Part 2:...
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December 31, 2015? [Note: the company uses the effective interest
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