Assume the same set of facts for Berol Corporation as in Exercise 10-16 except that it received

Question:

Assume the same set of facts for Berol Corporation as in Exercise 10-16 except that it received $109,862 in return for the issuance of the bonds when the market rate was 8%.

In Exercise 16

Berol Corporation sold 20-year bonds on January 1, 2012. The face value of the bonds was $100,000, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Berol received $91,526 in return for the issuance of the bonds when the market rate was 10%. Any premium or discount is amortized using the effective interest method.

Required

1. Identify and analyze the effect of the sale of the bonds on January 1, 2012, and the proper balance sheet presentation on this date.

2. Identify and analyze the effect of the payment of interest on December 31, 2012, and the proper balance sheet presentation on this date.

3. Explain why the company was able to issue the bonds for $109,862 rather than for the face amount.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...