Zapala Corporation has $10,000,000 of 9 percent, 20-year bonds dated June 1, 2014, with interest payment dates
Question:
Zapala Corporation has $10,000,000 of 9 percent, 20-year bonds dated June 1, 2014, with interest payment dates of May 31 and November 30. The company’s fiscal year ends November 30. It uses the effective interest method to amortize bond premiums or discounts.
Required
1. Assume the bonds are issued at 109.9 on June 1 to yield an effective interest rate of 8 percent. Prepare the journal entries for June 1, 2014, November 30, 2014, and May 31, 2015. (Round to the nearest dollar.)
2. Assume the bonds are issued at 91.4 on June 1 to yield an effective interest rate of 10 percent. Prepare the journal entries for June 1, 2014, November 30, 2014, and May 31, 2015. (Round to the nearest dollar.)
3. Explain the role that market interest rates play in causing a premium in requirement 1 and a discount in requirement 2.
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
1 2014 June 1 Cash 10990000 Unamortized Bond Premium 990000 Bonds Payable 10000000 Sold 9 20year bonds at 1099 Nov 30 Bond Interest Expense 439600 Unamortized Bond Premium 10400 Cash 450000 Paid semia...View the full answer
Principles of Accounting
ISBN: 978-1133626985
12th edition
Authors: Belverd E. Needles, Marian Powers and Susan V. Crosson
