Question
6 year bonds are issued at face value of $300,000 on Jan. 1, 2012, a stated interest rate of 4%, the interest paid semiannually on
6 year bonds are issued at face value of $300,000 on Jan. 1, 2012, a stated interest rate of 4%, the interest paid semiannually on 30/6 and 31/12 and market rate of 6%. Additional information:
PV for E1 paid for 12 periods at interest rate 4% = 9.385
PV for E1 paid after 12 periods at interest rate 4% = 0.625
PV for E1 paid for 12 periods at interest rate 3% = 9.9540
PV for E1 paid after 12 periods at interest rate 3% = 0.7014
Required:
1. Prepare the journals entries to record the issuance of the bonds Jan 1, 2012. (4 marks)
2. Prepare the journals entries to record the interest for the year ended 2013 only assuming that the company uses straight-line method in amortizing the premium or the discount. (6 marks)
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