Bond Transactions

Brand Company issued $1,290,000 face value, eight-year, 10% bonds on April 1, 2014, when the market rate of interest was 10%. Interest payments are due every October 1 and April 1. Brand uses a calendar year-end.

Required:

1. Prepare the journal entry to record the issuance of the bonds on April 1, 2016.

2. Prepare the journal entry to record the interest payment on October 1, 2016.

3. On December 31, Brand should:

A. record an accrued liability to recognize the interest expense incurred but not paid from October 1 to December 31.

B. not record any expense related to interest on the loan since it is not due until April 1st of the following year.

C. record a cash payment of three months' of interest to reflect interest for the period from October 1 to December 31.

D. record an accrued liability of six months' interest from October 1 until April 1st, and as a result, will pay half of this amount on April 1st with the other half being paid on December 31st.

4. Determine the total cash inflows and outflows that occurred on the bonds over the eight-year life.