On February 28, 2014, Durmann Corp. issues 5%, 10-year bonds payable with a face value of $900,000.

Question:

On February 28, 2014, Durmann Corp. issues 5%, 10-year bonds payable with a of $900,000. The bonds pay interest on February 28 and August 31. Durmann Corp. amortizes bond discount by the straight-line method.

Requirements
1. If the market interest rate is 4% when Durmann 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 6% when Durmann 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 95. Journalize the following bonds payable transactions.
a. Issuance of the bonds on February 28, 2014
b. Payment of interest and amortization of the bond discount on August 31, 2014
c. Accrual of interest and amortization of the bond discount on December 31, 2014, the year-end
d. Payment of interest and amortization of the bond discount on February 28, 2015
4. Report interest payable and bonds payable as they would appear on the Durmann Corp. at December 31, 2014.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...