Stowers Research issues bonds dated January 1, 2011, that pay interest semiannua

Question

Stowers Research issues bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds have a $34,000 par value and an annual contract rate of 8%, and they mature in 10 years.

Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Stowers Research issues bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds have a $34,000 par value and an annual contract rate of 8%, and they mature in 10 years.

Explanation / Answer

The following symbols are used to designate present value factor:
(pv1, i, n) = present value of $1 discounted at i%, n periods from present
(pva, i, n) = present value of an annuity of $1 discounted at i%, for n periods

The bonds are for 10 years, but interest is payable semi-annually, so there are 20 interest periods.

1. Market rate at the date of issuance is 10%.
(a) bonds%u2019 issue price on January 1, 2011
The formula is $37,000 (pv1, 5%, 20) + 6%($37,000 )(pva, 5%, 20)
= $37,000 (0.37689) + 6%($37,000 )(12.46221)
= $13,944.93 + $27,666.11
= $41,611.04

(b) journal entry to record their issuance
Dr Cash $41,611.04
Cr Bond premium $4,611.04
Cr Bonds payable $37,000.00

2. Market rate at the date of issuance is 12%.
(a) bonds%u2019 issue price on January 1, 2011
Since the market rate is the coupon rate, the bonds will be issuedat face value, $37,000.

(b) journal entry to record their issuance
Dr Cash $37,000
Cr Bonds payable $37,000

3. Market rate at the date of issuance is 14%.
(a) bonds%u2019 issue price on January 1, 2011
The formula is $37,000 (pv1, 7%, 20) + 6%($37,000 )(pva, 7%, 20)
= $37,000 (0.25842) + 6%($37,000 )(10.59401)
= $9,561.54 + $23,518.70
= $33,080.24

(b) journal entry to record their issuance
Dr Cash $33,080.24
Dr Bond discount $3,919.76
Cr Bonds payable $37,000.00

Note: Answers may differ depending on the no. of decimal points used. Pls refer to the PV tables given at the links.

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