Question

Assume that on February 1, 2014, Atlantic, Corp. issued 9%, 10-year bonds payable with maturity value of $800,000. The bonds pay interest on January 31 and July 31. Atlantic’s fiscal year-end is October 31.
Requirements
1. If the market interest rate is 8.5% when Atlantic, Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
2. If the market interest rate is 10% when Atlantic, Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
3. Assume that the issue price of the bonds is $832,000. Journalize the following bonds payable transactions, first using the straight-line method and second using the effective interest method
a. Issuance of the bonds on February 1, 2014.
b. Payment of interest and amortization of premium on July 31, 2014.
c. Accrual of interest and amortization of premium on October 31, 2014.
d. Payment of interest and amortization of premium on January 31, 2015.


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  • CreatedJuly 08, 2015
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