Accounting for Bonds
Bell Company sold $200,000 of 10-year bonds on January 1, 2008, to Brown Corporation.
The bond indenture included the following information:
Face value $200,000
Date of bonds January 1, 2008
Maturity date January 1, 2018
Stated rate of interest 14%*
Effective (market) rate of interest 12%*
*Compounded semiannually
Required:
1. Prepare the journal entry to record the issuance of the bonds.
2. What is the interest expense on the Bell Company books for the years ending
December 31, 2008, and December 31, 2009, using straight-line amortization?
3. Show how the bonds would be presented on Bell’s balance sheet at December 31, 2009.