Question

Cadington Inc. issued 8.5% bonds with a par value of $450,000 and a five-year life on January 1, 2014, for $459,125. The bonds pay interest on June 30 and December 31. The market interest rate was 8% on the original issue date.

Required
1. Calculate the total bond interest expense over the life of the bonds.
2. Prepare an amortization table using the effective interest method similar to Exhibit 15.15.
3. Show the journal entries that Cadington Inc. would make to record the first two interest payments assuming a December 31 year-end.
4. Use the original market interest rate to calculate the present value of the remaining cash flows for these bonds as of December 31, 2016. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.



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  • CreatedJanuary 08, 2015
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