On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $
ID: 2566325 • Letter: O
Question
On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $500,000 and a stated interest rate of 12%, payable semiannually on June 30 and December 31. The market rate for bonds of this type would be 10%. a Assume that the bonds are redeemed on January 1, 2016 for 101. Prepare the journal entry to record the redemption. bSuppose that the issuance date had been May 1, 2013 for bonds that were dated January 1, 2013. How would the journal entry have changed for the issuance of the bonds?On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $500,000 and a stated interest rate of 12%, payable semiannually on June 30 and December 31. The market rate for bonds of this type would be 10%. a Assume that the bonds are redeemed on January 1, 2016 for 101. Prepare the journal entry to record the redemption. bSuppose that the issuance date had been May 1, 2013 for bonds that were dated January 1, 2013. How would the journal entry have changed for the issuance of the bonds?
On January 1, 2013, Lowry Company issued eight-year bonds with a face value of $500,000 and a stated interest rate of 12%, payable semiannually on June 30 and December 31. The market rate for bonds of this type would be 10%. a Assume that the bonds are redeemed on January 1, 2016 for 101. Prepare the journal entry to record the redemption. bSuppose that the issuance date had been May 1, 2013 for bonds that were dated January 1, 2013. How would the journal entry have changed for the issuance of the bonds? a Assume that the bonds are redeemed on January 1, 2016 for 101. Prepare the journal entry to record the redemption. bSuppose that the issuance date had been May 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
Price of the bond = c × F × (1 (1 + r)-t)/r+F(1 + r)t C=Interest Rate F= Face Value r=Market Interest Rate Price of Bond= Present value of Interest payments+Present value of the bond Price of Bond 30000*(1-(1.05)^-16)/.05)+500000/(1.05)^16 (30000*(1-.45811)/.05)+500000*.45811 554189 Face vale $500,000 Premium $54,189 Interest payment 500000*6% 30000 A B C D E F G $ Date Interest Payment @6% Interest expenses at 5%*G Amortization of Bond C-B cr, balance in the a/c Bond Premium a/c Credit balance in the Bond payable Carrying value of Bond F+E Credit cash Debit Interest Expense Bond Premium Jan 1 2013 54189 $500,000 554189 June 30,2013 $30,000.00 27709 -2291 51898 500000 551898 Dec,31 2013 $30,000.00 27595 -2405 49493 500000 549493 June 30,2014 $30,000.00 27475 -2525 46968 500000 546968 Dec,31 2014 $30,000.00 27348 -2652 44316 500000 544316 June 30,2015 $30,000.00 27216 -2784 41532 500000 541532 Dec,31 2015 $30,000.00 27077 -2923 38609 500000 538609 Dr Cr Jan 1 2016 Bonds payable 500000 Premium on Bonds Payable $38,609 Gain on redemption of bonds 33609 Cash (500000/100*101) $505,000 Calculation of loss/gain on redemption Book value on Jan 1 2016 538609 Face value 500000 Unamortized premium 38609 ans b Cash 554189 Premium on Bonds payable $54,189 Bonds payable 500000
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