On February 1, 2021, Cromley Motor Products issued 9% bonds, dated February 1, with a face amount

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On February 1, 2021, Cromley Motor Products issued 9% bonds, dated February 1, with a face amount of $80 million. The bonds mature on January 31, 2025 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $80,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31.


Required:
1. Determine the price of the bonds issued on February 1, 2021.
2. Prepare amortization schedules that indicate (a) Cromley’s effective interest expense and (b) Barnwell’s effective interest revenue for each interest period during the term to maturity.
3.
Prepare the journal entries to record (a) the issuance of the bonds by Cromley and (b) Barnwell’s investment on February 1, 2021.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2023.

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Intermediate Accounting

ISBN: 978-1260481952

10th edition

Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas

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