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Lowry Co. Bond Issue Price and Amortization Table

Bond issue price and premium amortization.
On January 1, 2007, Lowry Co. issued ten-year bonds with a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:
Present value of 1 for 10 periods at 10% .386
Present value of 1 for 10 periods at 12% .322
Present value of 1 for 20 periods at 5% .377
Present value of 1 for 20 periods at 6% .312
Present value of annuity for 10 periods at 10% 6.145
Present value of annuity for 10 periods at 12% 5.650
Present value of annuity for 20 periods at 5% 12.462
Present value of annuity for 20 periods at 6% 11.470

Instructions
(a) Calculate the issue price of the bonds.
(b) Without prejudice to your solution in part (a), assume that the issue price was $884,000. Prepare the amortization table for 2007, assuming that amortization is recorded on interest payment dates.

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Solution Preview

(a) The issue price of the bonds will be the present value of the interest and principal discounted at the given yield. The interest amount is 1,000,000X10%/2 = 50,000 every six months. Principal amount is 1,000,000. The time period is 10X2=20 for semi annual and the discounting rate is 12%/2=6%
Issue price = 50,000 X PVIFA (20,6%) + ...

Solution Summary

The solution explains how to calculate the bond issue price and prepare an amortization table. 198 words with all calculations and tables displayed.

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