Analyzing bond terms and accounting for bonds (Learning Objective 5)

20–25 min.

On January 1, 2014, Sun Meadow Resorts issued $450,000 of 20-year, 8% bonds payable.

The bonds were sold for $432,000. The bonds pay interest each June 30 and December 31, and any discount or premium is amortized using straight-line amortization.

Requirements 1. Fill in the blanks to complete these statements:

a. Sun Meadow Resorts’ bonds are priced at (express the price as a percentage) ____________.

b. When Sun Meadow Resorts issued its bonds, the market interest rate was

(higher than, lower than, or equal to) ____________ 8%.

c. The amount of bond discount or premium is $____________.

2. Record the following transactions:

a. Issuance of the bonds payable on January 1, 2014.

b. Payment of interest (and amortization of discount or premium if any) on June 30, 2014.

c. Payment of interest (and amortization of discount or premium if any) on December 31, 2014. Explanations are not required.

3. At what amount will Sun Meadow Resorts report the bonds on its balance sheet at December 31, 2014?

AppendixLO1