Camco Inc. sold a $400,000, 12% bond on July 1, 2020. The bonds were dated April 1,

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Question:

Camco Inc. sold a $400,000, 12% bond on July 1, 2020. The bonds were dated April 1, 2020 and pay interest semi-annually each April 1st and October 1st and are due to mature on April 1, 2023 (3-year bonds). The first interest payment will be made on October 1, 2020. Camco Inc. has a year-end of December 31. The market rate of interest on July 1, 2020 was 16%.

(a) Calculate the selling price of the bond. Please note that the bonds were sold between interest payment dates!

(b) Prepare all journal entries to record the transactions AND year-end adjusting entries from July 1, 2020 up to and including April 1, 2021, under the assumption that the bonds referred to in part (a) sold for $365,538 (this amount does not include the accrued interest) on July 1, 2020 and would have sold for 368,058 on October 1, 2020. The Company uses the “effective-interest” method to calculate interest expense and the amortization of any premium/discount on the sale of the bond.

(c) Assume that on June 1, 2021, Camco Inc. repurchased one-tenth (10%) of the bond issue on the open market at 98% plus accrued interest. Prepare the journal entries to record the repurchase (or journal entry, if you choose to combine the two).

(d) This part is NOT worth marks, but I would suggest that you prepare an amortization schedule for the bond, at least up to the point of the interest payment on October 1, 2021.