Cook Construction has agreed to construct a factory in a new industrial park. To finance the construction, the county government issued $6,500,000 of 10-year, 4.75% revenue bonds for $6,950,000 on January 1, 2020. Cook will pay the interest and principal on the bonds. When the bonds are repaid, Cook will receive title to the factory. In the interim, Cook will pay property taxes as if it owned the factory. This financing arrangement is attractive to Cook, as state and local government bonds are exempt from federal income taxation and thus carry a lower interest rate. The bonds are attractive to investors, as both Cook and the county are issuers. The bonds pay interest semiannually on June 30 and December 31.
Required:
1. Prepare an amortization table through December 31, 2021, for these revenue bonds assuming straight-line amortization.
2. Discuss whether or not Cook should record the factory as an asset after it is constructed.
3. Discuss whether or not Cook should record the liability for these revenue bonds.