Impact of a Discount Berol Corporation sold 20-year bonds on January 1, 2010. The face value of

Question:

Impact of a Discount Berol Corporation sold 20-year bonds on January 1, 2010. 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, 2010, and the proper balance sheet presentation on this date.

2. Identify and analyze the effect of the payment of interest December 31, 2010, and the proper balance sheet presentation on this date.

3. Explain why it was necessary for Berol to issue the bonds for only $91,526 rather than $100,000.

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