On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $
ID: 2565518 • Letter: O
Question
On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $500,000 and a stated interest rate of 12%, payable semiannually on June 30 and December 31. The market rate for bonds of this type would be 10%. (a) Calculate the issue price of the bonds and the journal entry to record the issuance. (b) Prepare the amortization table for the bonds for January 1, 2013- December 31, 2015. (c) Prepare the necessary journal entry at December 31, 2013. (d) Prepare the necessary journal entry at June 30, 2015. (e) Assume that the bonds are redeemed on January 1, 2016 for 101. Prepare the journal entry to record the redemption. (f) Suppose that the issuance date had been May 1, 2013 for bonds that were dated January 1, 2013. How would the journal entry have changed for the issuance of the bonds? On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $500,000 and a stated interest rate of 12%, payable semiannually on June 30 and December 31. The market rate for bonds of this type would be 10%. (a) Calculate the issue price of the bonds and the journal entry to record the issuance. (b) Prepare the amortization table for the bonds for January 1, 2013- December 31, 2015. (c) Prepare the necessary journal entry at December 31, 2013. (d) Prepare the necessary journal entry at June 30, 2015. (e) Assume that the bonds are redeemed on January 1, 2016 for 101. Prepare the journal entry to record the redemption. (f) Suppose that the issuance date had been May 1, 2013 for bonds that were dated January 1, 2013. How would the journal entry have changed for the issuance of the bonds? On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $500,000 and a stated interest rate of 12%, payable semiannually on June 30 and December 31. The market rate for bonds of this type would be 10%. (a) Calculate the issue price of the bonds and the journal entry to record the issuance. (b) Prepare the amortization table for the bonds for January 1, 2013- December 31, 2015. (c) Prepare the necessary journal entry at December 31, 2013. (d) Prepare the necessary journal entry at June 30, 2015. (e) Assume that the bonds are redeemed on January 1, 2016 for 101. Prepare the journal entry to record the redemption. (f) Suppose that the issuance date had been May 1, 2013 for bonds that were dated January 1, 2013. How would the journal entry have changed for the issuance of the bonds?Explanation / Answer
Answer a. Table Value Based on n= 16 (8 Years X 2) i= 5% (10% / 2) Cash Flow Amount Present Value Interest - $500,000 X 12% X 6/12 30,000 325,133 ($30,000 X 10.83777) Principal 500,000 229,055 ($500,000 X 0.45811) Issue Price of Bonds 554,188 Premium on Bonds 54,188 Answer b. Bond Premium Amortization Schedule Date Interest Payment - $500,000 X 12% X 6/12 Interest Expense - Preceeding Bond Carrying Amount X 10% X 6/12 Premium Amortization Unamortized Premium Bond Carrying Amount A B C = A- B D = D - C E = $500,000 + D 1-Jan-13 - - - 54,188 554,188 30-Jun-13 30,000 27,709 2,291 51,898 551,898 31-Dec-13 30,000 27,595 2,405 49,492 549,492 30-Jun-14 30,000 27,475 2,525 46,967 546,967 31-Dec-14 30,000 27,348 2,652 44,315 544,315 30-Jun-15 30,000 27,216 2,784 41,531 541,531 31-Dec-15 30,000 27,077 2,923 38,608 538,608 Answer c & d. Journal Entry Date Particulars Dr. Amt. Cr. Amt 31-Dec-13 Interest Exp. Dr. 27,595 Premium on Bonds Payable Dr. 2,405 To Interest Payable 30,000 (Record the interest paid on bonds) 30-Jun-15 Interest Exp. Dr. 27,216 Premium on Bonds Payable Dr. 2,784 To Cash 30,000 (Record the interest paid on bonds)
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