Problem $2(9$ points$)$:

On January $1,$ Gimwraxx, Inc., issued $10-$year, $10\%$ bonds payable with a par value of $$1,000,000,$ and received $$885,000$ in cash proceeds. The market rate of interest at the date of issuance was $12\%.$ The bonds pay interest semiannually on July $1$ and January $1.$ Gimwraxx uses the straightline method for amortization rather than the more accurate effective interest method which is beyond the capability of Gimwraxx's enterprising accountant to calculate.

Prepare the journal entry to record the bond issuance. $(3$ points$)$

$Dr$

$Cr$

Prepare the journal entry to record the first semiannual interest payment on July $1.(3$ points$)$

Dr

$Cr$

Calculate the carrying $($book$)$ balance of the bond after the first semiannual interest payment. $(2$ points$)$

Market $($effective$)$ rates have fluctuated over the ten years and are at $8\%$ on the day that the bond matures. What is the market value of the bond on that day? $(1$ point$)$

$8||$ Pa g e