1. On January 1, 2014, Bay State Corporation issued the following bonds each at

Question

1. On January 1, 2014, Bay State Corporation issued the following bonds each at a price to yield 10% annual return, with interest paid on January 1 each year.

Issue 1: $1,000,000 par-value of 10%, 10 year bonds payable.

Issue 2: $1,000,000 par-value of 9%, 10 year bonds payable.

Issue 3: $1,000,000 par-value of 11%, 10 year bonds payable.

Required

(1)Are the above bonds issued at par, discount, or premium? What are the bond issue prices of the above bonds? Prepare journal entries to record the issuance of the above bonds on January 1, 2014.

Issue 1.

Issue 2.

Issue 3.

(2). Prepare journal entries to record the interests for years 2014 and 2015 for each of the above issues using the effective-interest method of amortizing bond discount and premium.

(You may use Excel for calculations as shown in the Chapter 10 example (2))

(3). What is the book value on the bond on Dec. 31 2015 for issue 1,2 and 3 respectively.

Explanation / Answer

1. On January 1, 2014, Bay State Corporation issued the following bonds each at

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