Question

On March 1, 2017, Glaslyn Inc. (Glaslyn) issued a $10,000,000 bond with a 4 percent coupon rate and a maturity date of February 28, 2023. Interest will be paid semi-annually on August 31 and February 28. Glaslyn's year end is December 31. The effective interest rate for a bond of this type on March 1, 2017 was 5 percent.

Required:
a. What will the proceeds be from the bond issue?
b. Prepare the journal entry to record the issue of the bond on March 1, 2017.
c. Prepare an amortization schedule using the effective interest rate method for any premium or discount that arose from the issue of the bond.
d. Prepare the journal entry required to accrue the interest expense and interest pay able on December 31, 2017. Make the entry assuming the effective interest rate method of amortization.
e. Prepare the journal entry required to record the interest expense on March 31, 2018 (the end of the first quarter). Assume Glaslyn uses the effective interest rate amortization method.
f. Prepare the journal entry required to record the retirement of the bond on maturity.
Include the interest expense and amortization of any bond premium or discount in the entry.
g. Assume that Glaslyn's bond agreement allowed it to redeem the bond on February 28, 2020 for $11,000,000. Prepare the journal entry required to record early retirement of the bond.
h. Assume the role of a shareholder in Glaslyn. How would you interpret the gain or loss that would be reported on Glaslyn's income statement as a result of the early retirement of the bond? Explain.



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  • CreatedFebruary 26, 2015
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