On January 1, 2021, LMU, Inc. issued $400,000 of 6%, 20 year bonds for $321,456, yielding an effective (market) interest rate of 8%. Interest is payable annually on December 31 each year. The company uses the effective interest method to amortize the discount.

REQUIRED:

a) Prove the issue price using present value analysis.

b) Prepare an amortization table showing the necessary information for the first two interest periods.

c) Prepare the journal entry for the bond issuance on January 1, 2021.

d) Prepare the journal entry to record the bond interest payment and discount amortization at December 31, 2021.

e) Prepare the journal entry to record the bond interest payment and discount amortization at December 31, 2022

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(a) (b) (c) (d) (e) 1/1/21 12/31/21 12/31/22 Prove the issue price using present value analysis: Amount Principal 400,000 Annual Interest Pmt 24,000 Computed Issue Price Less: Actual Issue Price Difference Col. A Col. B Col. C Discount Interest Interest to be Paid to be Recorded Amortization 24,000 GENERAL JOURNAL Account Date 1/1/21 Issue bonds $250K face bonds, 6% 10 years GENERAL JOURNAL Account Date 12/31/21 GENERAL JOURNAL Account Date 12/31/22 PV Table # Face Value 400,000 PV Factor Col. D Unamortized Discount Debit Debit Debit Total 0 0 0 (321,456) (321,456) Col. E Carrying Value Credit Credit Credit (a) (b) (c) (d) (e) 1/1/21 12/31/21 12/31/22 Prove the issue price using present value analysis: Amount Principal 400,000 Annual Interest Pmt 24,000 Computed Issue Price Less: Actual Issue Price Difference Col. A Col. B Col. C Discount Interest Interest to be Paid to be Recorded Amortization 24,000 GENERAL JOURNAL Account Date 1/1/21 Issue bonds $250K face bonds, 6% 10 years GENERAL JOURNAL Account Date 12/31/21 GENERAL JOURNAL Account Date 12/31/22 PV Table # Face Value 400,000 PV Factor Col. D Unamortized Discount Debit Debit Debit Total 0 0 0 (321,456) (321,456) Col. E Carrying Value Credit Credit Credit

Answer rating: 100% (QA)

Working notes a Calculation PV factor at 8 021455 Face value Cash Interest 981815 Issue price of Bon... View the full answer