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Problem#3. On January 1 2013, Louis Company issued bonds. Bonds data: Maturity (par value): $100,000. Bond...

Problem#3. On January 1 2013, Louis Company issued bonds.
Bonds data:
Maturity (par value): $100,000.
Bond term: 4-years.
Stated interest rate: 10% annually
Market interest rate: 10% annually
Interest is paid every year January 1st.
Required:  Calculate the bond selling price
1) Bond selling price = _____________________________
2) Is this a bond with premium or discount? Explain why.
1) Prepare journal entry on January 1, 2013.
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Answer #1
n = 8
I   = 5%
Cashflows Amount PVF Present Value
Semi annual interest (100000*10%*6/12) 5000 7.72173 38608.65
Principal 100000 0.613913 61391.3
Price of bonds 99999.95
Bond Selling price = 100,000
The Bonds are issued at Par as the market rate and stated rate is equal.
Journal entry:
Date Accounts title and explanations Debit $ Credit $
01.01.13 Cash account 100000
    Bonds payable 100000
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