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On February 28, 2021, Displays Corp. issues 8%, 10-year bonds payable with a face value of $800,000. The bonds pay interest on February 28 and
On February 28, 2021, Displays Corp. issues 8%, 10-year bonds payable with a face value of $800,000. The bonds pay interest on February 28 and August 31. Displays Corp. amortizes bonds by the effective interest method.
Requirements:
- If the market interest rate is 7% when Displays Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
- If the market interest rate is 9% when Displays Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
- Assuming that the market rate is 7%, prepare a bond amortization table and journalize the following bonds payable transactions:
- Issuance of the bonds on February 28, 2021.
- Payment of interest and amortization of the bonds on August 31, 2021.
- Accrual of interest and amortization of the bonds on December 31, 2021.
- Payment of interest and amortization of the bonds on February 28, 2022.
- Report interest payable and bonds payable as they would appear on the Displays Corp. Balance Sheet at December 31, 2021.
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