On March 1, 2016, Lakers Company issued 8% bonds dated March 1, 2016, with a fac
ID: 2407935 • Letter: O
Question
On March 1, 2016, Lakers Company issued 8% bonds dated March 1, 2016, with a face amount of $500,000. The bonds mature on September 1 2019 (3.5 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on September 1 and March 1. Required: I. Determine the price of the bonds at March 1, 2016. 2. Prepare the journal entry to record the bond issuance by Lakers on March 1, 2016. 3. Prepare the journal entry to record interest on September 1, 2016, using the effective interest method.Explanation / Answer
Req 1: Maturity value of bonds 500000 Stated rate of interest 8% Market rate of intererst 10% Semi annual interest (500000*8%*6/12) 20,000 Annuity Factor for Period7 at 5% 5.7864 Present value Factor of Priod -7 0.7107 Present value of interest 115728 Present value of maturity value 355350 Issue price 471078 Req 2: Jjournal entry for issuance: Cash account Account Dr. 471078 Discount on Bonds payable Dr. (500000-471078) 28,922 Bonds payable Account 500000 req 3: Interest Expense Account dr.(471078*5%) 23554 Cash account 20000 Discount on bonds payable 3554
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