Question

Part 1: On January 1 2018, Louis Company issued bonds with a Par Value of $400,000....

Part 1:

On January 1 2018, Louis Company issued bonds with a Par Value of $400,000. The coupon interest rate on the bond is 10%, and it has a maturity of 3 years.

Interest is paid semiannually on June 30th and December 31 of each year.

Value of Bond @ 8%=

Value of Bond @10%=

Part 2:

From part 1, using the effective interest method, show how the bond premium would be amortized over the life of the bond. Fill in the following table to do this. Please round any amounts to the nearest $.

A

B

C

D

E

Interest Date

Cash Interest Payment

Interest Expense

Premium Amortization

Premium A/C Balance

Bond Carrying Amount

1/1/2018

6/30/2018

12/31/2018

6/30/2019

12/31/2019

6/30/2020

12/31/2020
Business   Accounting   
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Homework Answers

Answer #1
Annuity PVF at 4% for 6 periods 5.24214
PVF at 4% for 6th periiod 0.790315
Present value of Maturity (400000*0.790315) 316126
Present value of interest (400000*5%) 104842.8
Value f bonds at 8% 420968.8
Annuity PVF at 5% for 6 periods 5.07569
PVF at 5% for 6th periiod 0.746215
Present value of Maturity (400000*0.746215) 298486
Present value of interest (400000*5%) 101513.8
Value f bonds at 10% 399999.8
Req 2.
Date Cash Int Int expense premium Unamortized Bond
Amortized Ppremium Carrying amount
01.01.18 20969 420969
30.06.18 20000 16839 3161 17808 417808
31.12.18 20000 16712 3288 14520 414520
30.06.19 20000 16581 3419 11101 411101
31.12.19 20000 16444 3556 7545 407545
30.06.20 20000 16302 3698 3847 403847
31.12.20 20000 16153 3847 0 400000
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