One question multiple parts h. Determine the numh 37 Lassen Corporation issued c

Question

One question multiple parts
h. Determine the numh 37 Lassen Corporation issued cen-year term bonds on January 1, 2010 with a face value of s800,000. The face inter 6 percent and interest is payable semi-annually on December 31. The rate of 8 percent. est rate is June 30 and bonds were issued to yield an effective annual Present Value of Ordinary Annuity Present Value of $i N-20: i-0.04 N-20: i-0.03 13.59033 14.87747 0.456390 0.555368 a. Calculate the issue price of the bond b. Calculate the issue price of the bond as a percentage c. Prepare Journal entry to record the sale of the bond

Explanation / Answer

a.
Market interest Rate = 8%
Market rate for semi annual period (i) = 8% / 2 = 4% or 0.04
n = 2 X 10 years = 20 years (semi annual period)
Present Value of Principal = $800000 x PV factor (4 %, 20 period)
= $800000 x 0.456390
= $365112

Interest Payment in each Semi Annual Period = $800000 x (6% / 2) = $24000
Present Value of Interest Payments = $24000 X PV Factor for an ordinary annuity ( 3% , 20)
= $24000 x 14.87747
= $357059 Approx (Rounding Figure)

Issue Price of The Bond = (Present Value of Principal + Present Value of Interest Payments)
= $365112 + $357059
= $722171

b.
Issue Price of The Bond as Percentage of Face Amount = Issue price of the Bond / Face Amount
= $722171 / $800000
= 90.27% (Approx)

c. Journal Entry of the sale of the bond

d.
Using Effective Interest Menthod, The Journal Entry of Interest Expenses For Year 1

Discount on issue of Bond = $77829
Amortise Discount on Bonds Payable = $77829 / 20 = $3891.45
Interest Payable = $24000 [see part a]
Interest Expenses = $3891.45 + $24000 = $27891.45

On June 30, 2010

On December 31, 2010

[Note - First 4 part is Answerd as per Rule]

Particulars Debit Credit Cash $722171 Discount on issue of Bond $77829 Bonds Payable $800000

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