Price and Issuance of Bonds
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Please help with the following problem.
Company issues 100, $1,000 face value, 8% (stated rate), and 3-year U.S. corporate bonds on January 1, 2010 when the market rate for similar risk bonds is 10%. Show the calculation of the issue price of the bonds and the JE to record the issuance of the bonds.
my answer is
Step 1
Face value 100000
Market rate 10%
Maturity 3 yrs
Semiannual market rate 0.05
Periods 6
PV of Face value $74,621.54
Step 2
Face value 100000
Stated rate 8%
Semiannual stated rate 4%
Semiannual interest payment $4,000.00
Market rate 10%
Maturity 3
Semiannual market rate 0.05
Periods 6
PV of Face value 20,302.77
Total PV of bond 94,924.31
1-Jan-10
Cash 94,924.31
Bonds payable 100,000.00
Premium on bonds payable (5,075.69)
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Solution Summary
This solution helps with accounting problem. It provides calculations for issue price of bonds and the JE to record the issuance of bonds.
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