On September 1, 2021, Evansville Lumber Company issued $80 million in 20-year, 10 percent bonds payable. Interest

Question:

On September 1, 2021, Evansville Lumber Company issued $80 million in 20-year, 10 percent bonds payable. Interest is payable semiannually on March 1 and September 1. Bond discounts and premiums are amortized at each interest payment date and at year-end. The company’s fiscal year ends at December 31.


Instructions.
a. Make the necessary adjusting entries at December 31, 2021, and the journal entry to record the payment of bond interest on March 1, 2022, under each of the following assumptions.
1. The bonds were issued at 98. (Round to the nearest dollar.)
2. The bonds were issued at 101. (Round to the nearest dollar.)
b. Compute the net bond liability at December 31, 2022, under assumptions 1 and 2. (Round to the nearest dollar.)
c. Under which of these assumptions, 1 or 2, would the investor’s effective rate of interest be higher? Explain.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Financial And Managerial Accounting The Basis For Business Decisions

ISBN: 9781260247930

19th Edition

Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello

Question Posted: