On January 1, 2013, Lowry Company issued ten-year bonds with a face value of $50
ID: 2462251 • Letter: O
Question
On January 1, 2013, Lowry Company issued ten-year bonds with a face value of $500,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The market rate for bonds of this type would be 12%.
REQUIRED:
(a) Calculate the issue price of the bonds and the journal entry to record the issuance.
(b) Assume that the bonds are redeemed on January 1, 2016 for 102. Prepare the journal entry to record redemption.
(c) Suppose that the issuance date had been April 1, 2013 for bonds that were dated January 1, 2013. How would the journal entry have changed for the issuance of the bonds?
Explanation / Answer
Principal
500,000 *.31180 = $155,900
(where i=6% and t = 20)
Interest
500,000@5% *11.46992 =286,748
(Where I = 6% ; t = 20)
Face value = $442,648
Bonds payable
$500,000
Loss on redemption on bonds
56,478
To Cash
$510,000
To unamortized discount
46,478
Cash
$442,648
Discount on bonds
63,602
To bonds payable
500,000
To interest payable
6,250
Principal
500,000 *.31180 = $155,900
(where i=6% and t = 20)
Interest
500,000@5% *11.46992 =286,748
(Where I = 6% ; t = 20)
Face value = $442,648
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