The Cessna Aircraft Company has outstanding an issue of 4% convertible bonds that mature October 1, 2024. Suppose the bonds are dated October 1, 2016, and pay interest each April 1 and October 1. The bond information is as follows:

a.            Maturity (face) value - $100,000

b.            Stated interest rate – 4%

c.             Interest paid – Semiannually

d.            Market interest rate at the time of issuance – 5%

 

Requirements

1.  Assume the bonds are issued at a price of 93.5. Using the straight-line method of amortization for bond discount or premium:

a. Calculate interest expense on bonds payable for each semiannual interest payment period.

b. Calculate the amount of accrued interest payable on the December 31, 2016, financial statements.

c. Prepare the journal entry required as of December 31, 2016, to accrue interest on the bonds payable.

2. Use Excel to build an amortization table through October 1, 2018. Use the straight-line method.

3.  Using the amortization table, record the following transactions:

a. Issuance of the bonds on October 1, 2016.

b. Payment of interest and amortization of the bond discount or premium on April 1, 2017.

Answer rating: 100% (QA)

Solution Issue price of the bonds face value 100000 Issued at 935 93500 Here Issue price is less than face value of bonds it means the bonds are issue... View the full answer