Question: McFad issues $90,000 of 11%, three-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. They are issued at

McFad issues $90,000 of 11%, three-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. They are issued at $92,283. Their market rate is 10% at the issue date.

Required
1. Prepare the January 1, 2011, journal entry to record the bonds’ issuance.
2. Determine the total bond interest expense to be recognized over the bonds’ life.
3. Prepare an effective interest amortization table like Exhibit 14B.2 for the bonds’ first two years.
4. Prepare the journal entries to record the first two interest payments.
5. Prepare the journal entry to record the bonds’ retirement on January 1, 2013, at 98.
Analysis Component
6. Assume that the market rate on January 1, 2011, is 12% instead of 10%. Without presenting numbers, describe how this change affects the amounts reported on McFad’s financial statements.

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Part 1 2011 Jan 1 Cash 92283 Premium on Bonds Payable 2283 Bonds Payable 90000 Sold bonds on stated issue date Part 2 Six payments of 4950 29700 Par v... View full answer

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