Effective-Interest Amortization
Response to the following problem:
Royce Corporation issued $200,000 of three-year, 12% bonds on January 1, 2008. The bonds pay interest on January 1 and July 1 each year. The bonds were sold to yield a 10% return, compounded semiannually
Required:
1. At what price were the bonds issued?
2. Prepare a schedule to amortize the premium or discount on the bonds using the effective-interest amortization method.
3. Use the information in the amortization schedule prepared for part (2) to record the interest payment on July 1, 2010, including the appropriate amortization of the premium or discount.
4. Interpretive Question: Explain why these bonds sold for more or less than face value