Dygat Corporation has $10,000,000 of 9 percent, 20-year bonds dated June 1, 2010 with interest payment dates

Question:

Dygat Corporation has $10,000,000 of 9 percent, 20-year bonds dated June 1, 2010 with interest payment dates of May 31 and November 30. The company’s fiscal year ends November 30. It uses the effective interest method to amortize bond premiums or discounts.

Required

1. Assume the bonds are issued at 109.9 on June 1 to yield an effective interest rate of 8 percent, prepare entries in journal form for June 1, 2010, November 30, 2010, and May 31, 2011.

2. Assume the bonds are issued at 91.4 on June 1 to yield an effective interest rate of 10 percent. Prepare entries in Journal form for June 1, 2010, November 30, 2010, and May 31, 2011.

3. Explain the role that market interest rates play in causing a premium in requirement 1 and a discount in requirement 2.

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...