Eagle Corporation issued $ 10,000,000, 6.5 percent bonds dated April 1, 2015. The market rate of interest was 7 percent, with interest paid each March 31. The bonds mature in three years, on March 31, 2018. Eagle’s fiscal year ends on December 31.
Required:
1. What was the issue price of these bonds?
2. Compute the bond interest expense for fiscal year 2015. The company uses the effective- interest method of amortization.
3. Show how the bonds should be reported on the statement of financial position at December 31, 2015.
4. What amount of interest expense will be recorded on March 31, 2016? Is this amount different from the amount of cash that is paid? If so, why?