Question

Angel Corporation has $15,000,000 of 9.6 percent, 10-year bonds dated April 1, 2011, with interest payment dates of March 31 and September 30. The company’s fiscal year ends September 30. It uses the effective interest method to amortize bond premiums or discounts.

REQUIRED
1. Assume the bonds are issued at 102 on April 1 to yield an effective interest rate of 9.3 percent. Prepare journal entries for April 1, 2011; September 30, 2011; and March 31, 2012.
2. Assume the bonds are issued at 96 on April 1 to yield an effective interest rate of 10.2 percent. Prepare journal entries for April 1, 2011; September 30, 2011; and March 31, 2012.
3. Explain the role that market interest rates play in causing a premium in requirement 1 and a discount in requirement 2.



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  • CreatedSeptember 10, 2014
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