Stower Research issues bonds dated January 1, 2005, that pay interest semiannually on June 30 and December 31. The bonds have a 20,000 par value, an annual contract rate of 10% , and mature in 10 years.
For each of the following three separate situation, (a) determine the bonds' issue price on January 1, 2005, and (b) prepare the journal entry to record their issuance.
1. Market rate at the date of issuance is 8%.
2. Market rate at the date of issuance is 10%.
3. Market rate at the date of issuance is 12%.
I recommend that you either use a financial calculator or excel to solve such questions. For your convenience, I am also showing you the excel formulas that you can use to solve such questions. The calculations are very difficult by hand and prone to errors.
Future Value = 20,000
Coupon Rate = 10% per annum
The solution calculates bond prices given the required data and also prepares journal entries to record the data.