On February 28, 2018, Shark Corp. issued 10%, 10-year bonds payable with a face value of $1,500,000.
Question:
On February 28, 2018, Shark Corp. issued 10%, 10-year bonds payable with a face value of $1,500,000. The bonds pay interest on February 28 and August 31. The company amortizes bond discount using the straight-line method.
Requirements
1. If the market interest rate is 9% when Shark 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 11% when Shark Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
3. Assume that the issue price of the bonds is 94. Journalize the following bond transactions.
a. Issuance of the bonds on February 28, 2018
b. Payment of interest and amortization of the bond discount on August 31, 2018
c. Accrual of interest and amortization of the bond discount on December 31, 2018 (fiscal year-end)
d. Payment of interest and amortization of the bond discount on February 28, 2019
4. Report interest payable and bonds payable as they would appear on Shark Corp.’s balance sheet at December 31, 2018.
Balance SheetBalance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... 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...
Step by Step Answer:
Req 1 The 10 bonds issued when the market interest rate is 9 will be priced at a premium They are re...View the full answer
Financial Accounting
ISBN: 978-0134725987
12th edition
Authors: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
