Sikes Corporation, whose annual accounting period ends on December 31, issued the following bonds:
Date of bonds: January 1, 2012
Maturity amount and date: $200,000 due in 10 years (December 31, 2021)
Interest: 10 percent per year payable each December 31
Date issued: January 1, 2012
Required:
1. Provide the following amounts to be reported on the January 1, 2012, financial statements immediately after the bonds are issued:
Case A (issued at 100) Case B (at 96) Case C (at 102)
a. Bonds payable...................................... $................................... $........................... $
b. Unamortized premium (or discount)
c. Carrying value
2. Assume that a retired person has written to you (an investment adviser) asking, "Why should I buy a bond at a premium when I can find one at a discount? Isn't that stupid? It's like paying list price for a car instead of negotiating a discount." Write a brief message in response to the question.