Stowers Research issues bonds dated January 1, 2011, that pay interest semiannua
ID: 2374644 • Letter: S
Question
Stowers Research issues bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds have a $35,000 par value and an annual contract rate of 10%, and they mature in 10 years.
Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" 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 $35,000 par value and an annual contract rate of 10%, and they mature in 10 years.
1. The market rate at the date of issuance is 8%. (a)
Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Issue price $
(b)
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 "$" sign in your response.)
2. The market rate at the date of issuance is 10%. (a)
Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Issue price $ (b)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.)
Date General Journal Debit Credit Jan. 1 (Click to select)CashBond interest payableAccounts receivableAccounts payableBonds payableBond interest expenseDiscount on bonds payablePremium on bonds payable (Click to select)Bond interest expenseCashAccounts receivableAccounts payablePremium on bonds payableBond interest payableDiscount on bonds payableBonds payable Date General Journal Debit Credit Jan. 1 (Click to select)Accounts receivableBond interest payablePremium on bonds payableBond interest expenseDiscount on bonds payableBonds payableAccounts payableCash (Click to select)Bonds payableCashBond interest expenseDiscount on bonds payableAccounts payablePremium on bonds payableAccounts receivableBond interest payable (Click to select)CashBonds payablePremium on bonds payableAccounts payableBond interest expenseAccounts receivableDiscount on bonds payableBond interest payable
Explanation / Answer
(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)
= $31,000 (0.37689) + 6%($37,000 )(12.46221)
= $11,683.59 + $27,666.11
= $39,349.7
(b) journal entry to record their issuance
Dr Cash $39,349.7
Cr Bond premium $8,349.7
Cr Bonds payable $31,000.00
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 issued at face value, $31,000.
(b) journal entry to record their issuance
Dr Cash $31,000
Cr Bonds payable $31,000
3. Market rate at the date of issuance is 14%.
(a) bonds%u2019 issue price on January 1, 2011
The formula is $31,000 (pv1, 7%, 20) + 6%($31,000 )(pva, 7%, 20)
= $31,000 (0.25842) + 6%($31,000 )(10.59401)
= $8,011.02 + $19,704.8586
= $27,715.8786
(b) journal entry to record their issuance
Dr Cash $27,715.8786
Dr Bond discount $3,284.1214
Cr Bonds payable $31,000.00