Rock Company issued a $1,000,000 3-year bond on January 1, 2014. The bond was dated January 1, 2014, had an 8% stated rate (per year), pays interest annually on December 31, and sold for $949,228 at a time when the market rate of interest was 10%. Rock Company uses the effective-interest method to account for its bond liability.

Required 1: Prepare the necessary journal entry for each of the following dates (assuming that no adjusting journal entries have been made during the year): (9 points)

January 1, 2014
December 31, 2014
December 31, 2015

Required 2: For the above data, explain (mathematically) why is the bond issue price determined at $949,228.

Answer rating: 100% (QA)

Introduction The journal entries are prepared to keep the record of day to day tran... View the full answer