Baxter Corporation issued $400,000 of 11% bonds for $385,279.91 on January 1, 2019. The bonds pay interest semiannually on June 30 and December 31, were issued to yield 12%, and are due on December 31, 2023. Interest is amortized using the effective interest method, and the bonds are callable at 105. In 2021, Baxter wishes to take advantage of more favorable market interest rate conditions and issues $450,000 of 11%, 10-year bonds at 102 on June 1. Interest on these bonds is payable each May 31 and November 30. Sufficient proceeds from this issue are used to recall the original issue on July 1, 2021. Required: 1. Prepare the journal entries to record (a) the original issue, (b) the new issue, and (c) the recall of the old issue. 2. Next Level If the company were required to reflect the current yield each year, explain how it would account for the bonds. For simplicity, assume that the yield changes from 12% to 11% on January 1, 2021. No calculations are required.

f the company were required to reflect the current yield each year, explain how it would account for the bonds. For simplicity, assume that the yield changes from 12% to 11% on January 1, 2021. No calculations are required.

If the yield on a long-term bond issuance changes from 12% in Year 1 to 11% in Year 2, which of the following would occur in Year 2?

The present value of the future cash flows would increase and a loss or a negative component of stockholders' equity would also be reported.

Without specific information regarding the amount and timing of the cash flows, the impact of the rate change cannot be reliably determined.

The present value of the future cash flows would decrease and a gain or a positive component of stockholders' equity would also be reported.

The future value of the cash flows would increase and a gain or a positive component of stockholders' equity would also be reported.