Southwest Corporation issued bonds with the following details: Face value: $600,000 Interest: 9 percent per year payable
Question:
Southwest Corporation issued bonds with the following details:
Face value: $600,000
Interest: 9 percent per year payable each December 31
Terms: Bonds dated January 1, 2012, due five years from that date
The annual accounting period ends December 31. The bonds were issued at 104 on January 1, 2012, when the market interest rate was 8 percent. Assume the company uses straight-line amortization and adjusts for any rounding errors when recording interest expense in the final year.
Required:
1. Compute the issue price of the bonds in dollars (show computations).
2. Give the journal entry to record the issuance of the bonds.
3. Give the journal entries to record the payment of interest on December 31, 2012 and 2013.
4. How much interest expense would be reported on the income statements for 2012 and 2013? Show how the liability related to the bonds should be reported on the balance sheets at December 31, 2012 and 2013.
CorporationA 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...
Step by Step Answer:
Fundamentals of Financial Accounting
ISBN: 978-0078025372
4th edition
Authors: Fred Phillips, Robert Libby, Patricia Libby