Problem 1. On June 1, 2013, Blue Company issued $10,000,000 of 8 percent bonds to yield 10 percent. Interest is payable semiannually on May 31 and November 30. The bonds mature in 10 years. Blue Company is a calendar year company.

a. Determine the issue price of the bonds.

b. Prepare an amortization table for the first two interest periods using the effective interest method.

c. Prepare the journal entries to record bond-related transaction as of the following dates:

Jun 1, 2013

Nov 30, 2013

Dec 31, 2013

May 31, 2014

1. What is a liability? What is it a result of?

2. On page 12-10 know what conditions must be met before a short-term obligation may be properly excluded from the current liability classification.

3. Bond discount should be presented in the financial statements of the issuer as a ______________

Liability.

4. The market price of a bond issued at a discount is the present value of what two things?

Know how to calculate or determine it.

5. If a bond issue sells for more than its face value, the market rate of interest is less or more than the stated rate?

6. What does the issuance price of a bond depend on?

7. What are callable bonds?

8. The net amount of a bond liability that appears on the balance sheet is the face value of the bond plus the related __________________________ or minus the related __________________.

9. How do you calculate the interest expense when using the effective-interest amortization method?

10. How does accrued interest on bonds that are sold between interest dates affect the amount a buyer pays for the bonds?