Lincoln Machine Tool, Inc., issued $540,000 of 20-year, 5 percent bonds payable on January 1. Lincoln Machine
Question:
Lincoln Machine Tool, Inc., issued $540,000 of 20-year, 5 percent bonds payable on January 1. Lincoln Machine Tool, Inc., pays interest each January 1 and July 1 and amortizes any discount or premium by the straight-line method. Lincoln Machine Tool, Inc., can issue its bonds payable under various conditions:
a. Issuance at par value
b. Issuance at a price of $460,000 when the market rate was above 5 percent
c. Issuance at a price of $600,000 when the market rate was below 5 percent
Requirements
1. Journalize Lincoln Machine Toll, Inc.'s issuance of the bonds and first semiannual interest payment for each situation. Round calculations to the nearest dollar. Explanations are not required.
2. Which condition results in the most interest expense for Lincoln Machine Tool, Inc.? Explain in detail.
Step by Step Answer: