Question
On January 2012, Lower Under Co announced an offer to issue bonds with a $200,000 par value, a 10% annual contract rate with interest payable
On January 2012, Lower Under Co announced an offer to issue bonds with a $200,000 par
value, a 10% annual contract rate with interest payable semi-annually, and with a three-year life
to gain some liquidity given the current market conditions. Interest payments are due on April 1
and October 1 of each year. Lower Under agrees to make six payments over the three years of
the bond. Bonds are issue on April 1st 2012, maturity date is April 1, 2015 and the market rate
on April 1st 2012 is 8%. Lower Under Co. closes its books annually on December 31 and uses
the effective interest method.
When the bond is cancelled at maturity date on April 1st 2015, the total cash outflow for Lower
Under will be (round to the nearest dollar):
The amortization of the bond premium or discount on period 3 is (round to the nearest dollar):
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Accounting Information Systems
Authors: Cynthia D Heagy, Constance M Lehmann
7th Edition
1111219516, 978-1111219512
