Q$4$

$(12$ marks$)$

The following are selected account balances for ABC Co$.$ at $31$ December $2011$:

Statement of Financial Position

Non$-$Current Liabilities

Bonds payable $$893,435$

Notes Payable $$1,295,887$

Current liabilities

Interest Payable $$100,000$

Cash Flow Statement

Cash Flow from Financing Activities

Note Payable Installment $$400,000$

Income Statement

Interest Expense $$246,466\mathrm{.}9$

Further Information:

The Bonds payable were issued on $01$ January $2011.$ They are $10-$year bonds that bear a stated rate of $10\%$ with interest paid annually on January $01.$ The periodic amortization for $2011$ was $$6439\mathrm{.}5$

ABC Co$.$ uses the effective$-$interest method of amortization.

The notes payable are $5-$year, zero$-$interest bearing notes that are issued on $01$ January $2011$ and payable in equal installments of $$400,000$ on December $31.$

Required:

For ABC Co$.$:

a$.$ Calculate the issue price of the notes payable.

b$.$ Calculate the face value of the bond

c$.$ Assume that ABC Co$.$ extinguished $50\%$ of bonds on January $2,2012,$ by giving up equipment with a fair value of $$300,000.$ The equipment had an original cost of $$850,000$ and an accumulated depreciation of $$400,000$ as of January $2,2012.$ Prepare the journal entry on January $2,2012.$