Question #4 (20 marks)

Part A and Part B are independent.

Part A. (14 marks)

On January 1, 2021, Daniel Corp. issued $500,000 of 10-year, 8% bonds for $385,298, yielding a market (discount, yield) rate of 12% per year. Interest is paid semi-annually on June 30 and December 31. Daniel uses the effective interest rate method to account for bonds.

Required:

a.

Prepare JEs to record the issue on Jan. 1, 2021. Include the Discount on B/P (1 mark)

b.

What interest expense is reported on I/S for year ending December 31,2021?(3 marks)

c.

On December 31, 2029, after paying the December 31 interest (Coupon), Daniel Corp retires the bonds for $486,153. Determine the gain/loss on bonds retirement and prepare journal entries to record the retirement. Include the unamortized bond discount. (7 marks)

d.

Ignore (b) and suppose that on December 31, 2029 the yield decreases from 12% to 10% per year. What is the present value of the remaining cash flows of the bonds? (3 marks)

Part B.

(6 marks)