i.Date of issuance = 07/01/12 ii.The bond must be issued at a premium = 113.55 (
ID: 2569687 • Letter: I
Question
i.Date of issuance = 07/01/12
ii.The bond must be issued at a premium = 113.55 (based on market yield)
iii.Bond maturity = 10 years.
iv.The bond interest payment = semi annually
v.The principal, stated interest rate, market interest rate, and maturity for your bond= $100,000 at 10% and market rate of interest 8%. The maturity of bond = 07/01/22.
A.Prepare the journal entries for the first interest payment.
B.Determine the amount of expenses that will be reported on the income statement for Year #2
C.Review you journal entries in in A and explain why the amount of cash paid to the bond holders is different from the expense reported on the income statement.
D.Explain why you company needs the additional capital (cash) provided by the bond
Explanation / Answer
A. Journal
B.
The amount of expenses that will be reported on the income statement for Year 2 = 4505 + 4485 = $8990
C.
The amount of cash paid to the bond holders is different from the expense reported on the income statement due to amortization of premium on bonds payable.
D.
Company may need additional capital provided by bond for long term financing purposes or for capital investment purposes.
Date Account Name Debit Credit 12/31/12 Interest expense ($100000 x 113.55% x 4%) $4542 Premium on bonds payable 458 Cash ($100000 x 5%) $5000 (To record interest payment)Related Questions
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