Question

During 2013 and 2014, Cook Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31.
2013
Mar. 1 Issued $200,000 of eight-year, 6 percent bonds for $194,000. The semiannual cash payment for interest is due on March 1 and September 1, beginning September 2013.
Sept. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.
Dec. 31 Recognized accrued interest expense including the amortization of the discount.
Dec. 31 Closed the interest expense account.
2014
Mar. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.
Sept. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.
Dec. 31 Recognized accrued interest expense including the amortization of the discount.
Dec. 31 Closed the interest expense account.

Required
a. When the bonds were issued, was the market rate of interest more or less than the stated rate of interest? If the bonds had sold at face value, what amount of cash would Cook Co. have received?
b. Prepare the general journal entries for these transactions.
c. Prepare the liabilities section of the balance sheet at December 31, 2013 and 2014.
d. Determine the amount of interest expense Cook would report on the income statements for 2013 and 2014.
e. Determine the amount of interest Cook would pay to the bondholders in 2013 and 2014.



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  • CreatedOctober 26, 2013
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