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 30^th and December 31 of each year.

Required:

Compute the value of the bond assuming the following market rates of interest:

[5 points]

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

Part 3:

Show journal entries for the premium bond for the following:

The issue of the bond on January 1^st, 2018

(ii) The first and second interest dates (June 30^th, 2018 and December 31^st, 2018)

[10 points]

1/1/18	Account Name	Debit	Credit

6/30/18	Account Name	Debit	Credit

12/31/18	Account Name	Debit	Credit