This (adapted) advertisement appeared in the Wall Street Chronicle.

Requirements
1. Journalize Holidays issuance of these bonds payable on March 15, 2010. No explanation is required, but describe the transaction in detail, indicating who received cash, who paid cash, and how much.
2. Why is the stated interest rate on these bonds so high?
3. Compute the semiannual cash interest payment on the bonds.
4. Compute the semiannual interest expense under the straight-line amortization method.
5. Compute both the first-year (from March 15, 2010, to March 15, 2011) and the second-year interest expense (March 15, 2011, to March 15, 2012) under the effective-interest amortization method. The market rate of interest at the date of issuance was 13%. Why is interest expense greater in the secondyear?

Transcribed Image Text:

New issue $700,000 HOLIDAY CORPORATION 12% Subordinated Debentures due March 15, 2020 interest payable March 15 and September 15 Price 94.5%