Question
1.Assume $400,000 of 10% bonds with a contract date of May 1, 20x2 were not issued until July 1, 20x2. The bonds pay interest on
1.Assume $400,000 of 10% bonds with a contract date of May 1, 20x2 were not issued until July 1, 20x2. The bonds pay interest on November 1 and May 1. The due date of the bonds is May 1, 20x6. The bonds yield 12%.
Required:
a. Give the journal entries through November 1, 20x3. Round your answers off to the nearest dollar!
b. What if after the November 1, 20x3 payment is made the company buys back $120,000 of the $400,000 face bonds when the current market interest rate is 8%?
i.Give the journal entry for the buy back of the bonds. Where on the income statement would the gain(loss) on the buy back be reported? Be specific in your answer.
ii.Why would this company buy back its bonds early? Give two reasons.
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