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Computing Bond Price and Recording Issuance

Stowers 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. Required for each of the following three separate situations,
(a) determine the bonds' issue price on January 1, 2005, and
(b) prepare the journal entry to record their issuance.

Situations:
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%.

Solution Preview

For each of the following three separate situations, (a) determine the bonds' issue price on January 1, 2005, and (b) prepare the journal entry to record their issuance.

The issue price will be the present value of interest and principal discounted at the market interest rate. You have already calculated the premium and ...

Solution Summary

The solution explains how to calculate the bond price given the market rates at the time of issuance with step-by-step calculations and written explanation.

$2.19