Nemo Company authorized and sold $90,000 of 10%, 15-year bonds on April 1, 2012. The bonds pay interest each April 1, and Nemos year-end is

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Nemo Company authorized and sold $90,000 of 10%, 15-year bonds on April 1, 2012. The bonds pay interest each April 1, and Nemo’s year-end is December 31.

Required:

1. Prepare journal entries to record the issuance of Nemo Company’s bonds under each of the following three assumptions:

a. Sold at 97

b. Sold at face value

c. Sold at 105

2. Prepare adjusting entries for the bonds on December 31, 2012, under all three assumptions. (Use the straight-line amortization method.)

3. Show how the bond liabilities would appear on the December 31, 2012, balance sheet under each of the three assumptions.

4. Interpretive Question: What condition would cause the bonds to sell at 97? At 105?