Waxman Corporation has $2,000,000 of 9.5 percent, 25-year bonds dated March 1, 20101, with interest payable on

Question:

Waxman Corporation has $2,000,000 of 9.5 percent, 25-year bonds dated March 1, 20101, with interest payable on February 28 and August 31. The company’s fiscal year-end is February 28. It uses the straight-line method to amortize bond premiums or discounts.

REQUIRED

1. Assume the bonds are issued at 102.5 on March 1, 2011. Prepare journal entries for March 1, 2011; August 31, 2011; and February 28, 2012.

2. Assume the bonds are issued at 97.5 on March 1, 2011. Prepare journal entries for March 1, 2011; August 31, 2011; and February 28, 2012.

3. Explain the role that market interest rates play in causing a premium in requirement 1 and a discount in requirement 2.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...