Case Scenario: Morseby Inc. produces and sells voltage regulators. On July 1,2002, Morseby Inc. issued $8,000,000 of ten year , 11% bonds at an effective interest rate of 10%. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year for the company is the calender year.
Question 1: Journalize the entry to record the amount of the cash proceeds form the sale of bonds.
Question 2: Journalize the entries to record the following
a) The first semiannual interest payment on December 31, 2002, including the amortization of the bond premium using the straight line method.
b) The interest payment on June 30, 2003, and the amortization of the bond premium using the straight line method.
Question 3) Determine the total interest expense for 2002.
Question 4) Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest? Explain.