On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $

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%. REQUIRED: (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. 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%. REQUIRED: (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. 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%. REQUIRED: (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.

Explanation / Answer

a) Issue price of the bonds where t= 16 years n= 5% principal 500,000 * .45811 229055 (use PV of $1 table at 5% for 16 years) interest 30000 *10.83777 325133 (use pv of ordinary annuity table) issue price 554188 b) Amortization Schedule year Cash interest premium Carrying interest expense amortized Value 6% 5% 1/1/2013 554,188 6/30/2013 30,000 27709 2291 551898 12/31/2013 30,000 27595 2405 549492 6/30/2014 30,000 27475 2525 546967 12/31/2014 30,000 27348 2652 544315 6/30/2015 30,000 27216 2784 541531 31/12/2015 30,000 27077 2923 538608 c) Journal entry Date Accounting titles & Explanations debit Credit 12/31/2013 interest expense 27,595 premium ob bonds payable 2,405 Cash 30,000 d) 6/30/2015 interest expense 27,216 premium ob bonds 2,784 Cash 30,000

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