In the following two independent cases, the company closes its books on December 31: 1. Armstrong Inc.

Question:

In the following two independent cases, the company closes its books on December 31:

1. Armstrong Inc. sells $2 million of 10% bonds on March 1, 2014. The bonds pay interest on September 1 and March 1. The bonds' due date is September 1, 2017. The bonds yield 12%.

2. Ouelette Ltd. sells $6 million of 11% bonds on June 1, 2014. The bonds pay interest on December 1 and June 1. The bonds' due date is June 1, 2018. The bonds yield 10%. On October 1, 2015, Ouelette buys back $1.2 million worth of bonds for $1.4 million (includes accrued interest).

Instructions

For the two cases above, prepare all of the relevant journal entries from the time of sale until the date indicated. (For situation 1, prepare the journal entries through December 31, 2015; for situation 2, prepare the journal entries through December 1, 2016.) Use the effective interest method for discount and premium amortization (prepare any necessary amortization tables). Amortize any premium or discount on the interest dates and at year end. (Assume that no reversing entries were made.)

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Intermediate Accounting

ISBN: 978-1118300855

10th Canadian Edition Volume 2

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy

Question Posted: