Question
6 year bonds are issued at face value of $500,000 on Jan. 1, 2012, a stated interest rate of 8%, the interest is paid semiannually
6 year bonds are issued at face value of $500,000 on Jan. 1, 2012, a stated interest rate of 8%, the interest is 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 3% = 9.9540
PV for E1 paid after 12 periods at interest rate 3% = 0.7014
Required:
1. Calculate the issuance price. (3 marks)
2. Prepare the journals entries to record the interest for the year ended 2014 only assuming that the company uses effective interest rate method in amortizing the premium or the discount. (7 marks)
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