Question
On January 1 of 2019, Victor Corporation sold bonds with a face value of $1,450,000 and a coupon rate of 9 percent. The bonds mature
On January 1 of 2019, Victor Corporation sold bonds with a face value of $1,450,000 and a coupon rate of 9 percent. The bonds mature in three years and pay interest semiannually every June 30 and December 31. Victor uses the straight-line amortization method and also uses a premium account. Assume an annual market rate of interest of 8 percent. Round your final answers to the nearest whole dollars.
(To answer this question, you may need the PV of $1 table and the PV of annuity of $1 table. You can find these tables on the last page of this exam.)
(1) Prepare the journal entry to record the issuance of the bonds.
(2) Prepare the journal entry to record the interest payment on December 31, 2019.
(3)What is the book value of bonds payable that will appear on the firms balance sheet on December 31, 2019?
(4) If instead, the firm pays interest annually every December 31 (as opposed to paying interest semiannually every June 30 and December), and all the other bond characteristics (i.e. face value, coupon rate, bond term) as well as the annual market rate of interest remain unchanged. Do you think this will affect the calculation of the bond issue price compared to what you got in question (1)? How?
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