This problem continues the Draper Consulting, Inc., situation from Problem 10-24 of Chapter 10. Draper Consulting, Inc., is considering raising additional capital. Draper plans to raise the capital by issuing $400,000 of 8%, seven-year bonds on March 1, 2012. The bonds pay interest semiannually on March 1 and September 1. On March 1, 2012, the market rate of interest required by similar bonds by investors is 10%.

Requirements

1. Will Draper’s bonds issue at par, a premium, or a discount?

2. Calculate and record the cash received on the bond issue date.

3. Journalize the first interest payment on September 1 and amortize the premium or discount using the straight-line interest method.

4. Journalize the entry required, if any, on December 31 related to the bonds.