1.ABC Co. sold a $50,000 bond issue at face value on October 1, 20X2 with a 5% stated annual interest rate. Interest is paid on the entire bond issue semiannually on June 30 and December 31 each year. The original issue date for the bond issue was January 1, 20X2.

(a) What entry will be made on the books of ABC Co. when it issues the bonds on October 1, 20X2?

(b) Relative to this bond issue, what entry will ABC Co. make to record the next semiannual interest payment on December 31, 20X2?

2.On January 2, 20X6, Davis Manufacturing Company (lessee) leased factory equipment from Leasing Specialists, Inc. (lessor) for an 8 year period. The present discounted value of the lease payments from the lessee's perspective totals $288,000. The estimated useful life of the equipment is 10 years and its fair value is $300,000. Title to the equipment does not transfer to the lessee at the end of the lease.

a) Does the lessee have an operating lease or a capital lease in this case?

b) If the lessee has a capital lease, what entry, if any, is needed on January 2, 20X6?