(Learning Objectives 2, 5: Issuing bonds at a discount; amortizing by the effective interest method; reporting notes...
Question:
(Learning Objectives 2, 5: Issuing bonds at a discount; amortizing by the effective interest method; reporting notes payable on the balance sheet) On February 28, 20X0, Mackerel Corp. issues 6%, 20-year bonds payable with a face value of €1,800,000. The bonds pay interest on February 28 and August 31. Mackerel Corp. amortizes bonds by the effective interest method.
❙ Requirements 1. If the market interest rate is 5% when Mackerel Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
2. If the market interest rate is 7% when Mackerel Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
3. Assuming the market rate is 5%, journalize the following bond transactions.
a. Issuance of the bonds on February 28, 20X0.
b. Payment of interest and amortization of the bonds on August 31, 20X0.
c. Accrual of interest and amortization of the bonds on December 31, 20X0, the year-end.
d. Payment of interest and amortization of the bonds on February 28, 20X1.
4. Report interest payable and bonds payable as they would appear on the Mackerel Corp.
balance sheet at December 31, 20X0.
Step by Step Answer:
Financial Accounting International Financial Reporting Standards
ISBN: 9780273777809
1st Global Edition
Authors: Walter T Harrison, Charles Horngren, Bill Thomas, Themin Suwardy