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The Cessna Aircraft Company has outstanding an issue of 4% convertible bonds that mature October 1, 2024. Suppose the bonds are dated October 1, 2016,
The Cessna Aircraft Company has outstanding an issue of 4% convertible bonds that mature October 1, 2024. Suppose the bonds are dated October 1, 2016, and pay interest each April 1 and October 1. The bond information is as follows:
- Maturity (face) value - $100,000
- Stated interest rate 4%
- Interest paid Semiannually
- Market interest rate at the time of issuance 5%
Requirements
- Assume the bonds are issued at a price of 93.5. Using the straight-line method of amortization for bond discount or premium:
- Calculate interest expense on bonds payable for each semiannual interest payment period.
- Calculate the amount of accrued interest payable on the December 31, 2016, financial statements.
- Prepare the journal entry required as of December 31, 2016, to accrue interest on the bonds payable.
- Use Excel to build an amortization table through October 1, 2018. Use the straight-line method.
- Using the amortization table, record the following transactions:
- Issuance of the bonds on October 1, 2016.
- Payment of interest and amortization of the bond discount or premium on April 1, 2017.
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