Clark, Inc., issued $50,000 of 10-year, 9% bonds payable on January 1, 2012. Clark pays interest each January 1 and July 1 and amortizes discount or premium by the straight-line method. The company can issue its bonds payable under various conditions.
Requirements
1. Journalize Clark’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at par value. Explanations are not required.
2. Journalize Clark’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at a price of 95. Explanations are not required.
3. Journalize Clark’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at a price of 106. Explanations are not required.
4. Which bond price results in the most interest expense for Clark? Explain in detail.