Jessie Co. issued $3 million face amount of 9%, 20-year bonds on July 1, 2022. The bonds
Question:
Jessie Co. issued $3 million face amount of 9%, 20-year bonds on July 1, 2022. The bonds pay interest on an annual basis on June 30 each year.
Required:
a. Assume that market interest rates were slightly lower than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain.
b. Independent of your answer to a, assume that the proceeds were $3,120,000. Use the horizontal model (or write the journal entry) to show the effect of issuing the bonds.
c. Calculate the interest expense that Jessie Co. will show with respect to these bonds in its income statement for the year ended December 31, 2022, assuming that the premium of $120,000 is amortized on a straight-line basis.
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