Question
Eagle Corporation sold $500,000, 8%, 10-year bonds on January 1, 2014. The bonds pay interest semiannually on June 30th and December 31st. The company uses
Eagle Corporation sold $500,000, 8%, 10-year bonds on January 1, 2014. The bonds pay interest semiannually on June 30th and December 31st. The company uses straight-line amortization for premiums and discounts. Financial statements are prepared annually.
1. Prepare the journal entry on January 1, 2014 to record the issuance of the bonds assuming they sold at 99. (3 points)
2. Prepare the journal entry necessary on June 30th to record the first interest payment, assuming the bonds sold at 99. (3 points)
3. Calculate the carrying value of the bonds at the end of the fifth year (December 31, 2018). (2 points)
4. Calculate the total cost of borrowing. (2 points)
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