On January 1, 2013, Stone Company issued bonds with a face value of $400,000, a stated rateof

Question:

On January 1, 2013, Stone Company issued bonds with a of $400,000, a stated rate of interest of 7 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 6 percent at the time the bonds were issued. The bonds sold for $429,440. Stone used the effective interest rate method to amortize bond premium.

Required
a. Determine the amount of the premium on the day of issue.
b. Determine the amount of interest expense recognized on December 31, 2013.
c. Determine the carrying value of the bond liability on December 31, 2013.
d. Provide the general journal entry necessary to record the December 31, 2013, interest expense.

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...