Stowers Research issues bonds dated January 1, 2011, that pay interest semiannua
ID: 2374697 • 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 $34,000 par value and an annual contract rate of 8%, and they mature in 10 years.
Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" 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
1. Market rate at the date of issuance is 8%.
(a) bonds%u2019 issue price on January 1, 2005
The formula is $20,000(pv1, 4%, 20) + 5%($20,000)(pva, 4%, 20)
= $20,000(0.45639) + 5%($20,000)(13.59033)
= $9,127.80 + $13,590.33
= $22,718.13
(b) journal entry to record their issuance
Dr Cash $22,718.13
Cr Bond premium $2,718.13
Cr Bonds payable $20,000
2. Market rate at the date of issuance is 10%.
(a) bonds%u2019 issue price on January 1, 2005
Since the market rate is the coupon rate, the bonds will be issued at face value, $20,000.
(b) journal entry to record their issuance
Dr Cash $20,000
Cr Bonds payable $20,000
3. Market rate at the date of issuance is 12%.
(a) bonds%u2019 issue price on January 1, 2005
The formula is $20,000(pv1, 6%, 20) + 5%($20,000)(pva, 6%, 20)
= $20,000(0.31180) + 5%($20,000)(11.46992)
= $6,236 + $11,469.92
= $17,705.92
(b) journal entry to record their issuance
Dr Cash $17,705.92
Dr Bond discount $2,294.08
Cr Bonds payable $20,000