The following three companies issued the following bonds: 1. Lot, Inc., issued $100,000 of 8 percent, five-year

Question:

The following three companies issued the following bonds:

1. Lot, Inc., issued $100,000 of 8 percent, five-year bonds at 102 ¼ on January 1, 2012. Interest is payable annually on December 31.

2. Max, Inc., issued $100,000 of 8 percent, five-year bonds at 98 on January 1, 2012. Interest is payable annually on December 31.

3. Par, Inc., issued $100,000 of 8 percent, five-year bonds at 104 on January 1, 2012. Interest is payable annually on December 31.

Required

a. Organize the class into three sections and divide each section into groups of three to five students. Assign each of the sections one of the companies.

Group Tasks

(1) Compute the following amounts for your company (use straight-line amortization):

(a) Cash proceeds from the bond issue.

(b) Interest paid in 2012.

(2) Prepare the liabilities section of the balance sheet as of December 31, 2012.

Class Discussion

b. Have a representative of each section put the liabilities section for its company on the board.

c. Is the amount of interest expense different for the three companies? Why or why not?

d. Is the amount of interest paid different for each of the companies? Why or why not?

e. Is the amount of total liabilities different for each of the companies? Why or why not?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...