Question

Southwest Corporation issued bonds with the following details:
Face value: $ 600,000
Interest: 9 percent per year payable each December 31
Terms: Bonds dated January 1, 2015, due five years from that date
The annual accounting period ends December 31. The bonds were issued at 104 on January 1, 2015, when the market interest rate was 8 percent. Assume the company uses straight-line amortization and adjusts for any rounding errors when recording interest expense in the final year.
Required:
1. Compute the cash received from the bond issuance in dollars (show computations).
2. Give the journal entry to record the issuance of the bonds.
3. Give the journal entries to record the payment of interest on December 31, 2015 and 2016.
4. How much interest expense would be reported on the income statements for 2015 and 2016? Show how the liability related to the bonds should be reported on the balance sheets at December 31, 2015 and 2016.


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  • CreatedNovember 02, 2015
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