On March 1, 2017, Shaw Systems Ltd. issues 8.5 percent, 20-year bonds payable with a maturity value
Question:
On March 1, 2017, Shaw Systems Ltd. issues 8.5 percent, 20-year bonds payable with a maturity value of $5,000,000. The bonds pay interest on February 28 and August 31. Shaw Systems Ltd. amortizes premiums and discounts by the straight-line method.
Required
1. If the market interest rate is 7.5 percent when Shaw Systems 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 9 percent when Shaw Systems issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.
3. Assume the issue price of the bonds is 97.00. Journalize the following bond transactions:
a. Issuance of the bonds on March 1, 2017.
b. Payment of interest and amortization of the discount on August 31, 2017.
c. Accrual of interest and amortization of the discount on December 31, 2017, Shaw Systems' year end.
d. Payment of interest and amortization of the discount on February 28, 2018.
4. Report interest payable and bonds payable as they would appear on the Shaw Systems Ltd. balance sheet at December 31, 2017.
Balance SheetBalance 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... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
Step by Step Answer:
Horngrens Accounting
ISBN: 978-0133855388
10th Canadian edition Volume 2
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura, Carol A. Meissner, Jo Ann L. Johnston, Peter R. Norwood