Response to the following problem:
Broker Company arranged to sell $2,000,000 of its bonds to finance a substantial increase in capacity. The following data are available:
2015
July 2 Broker Company received authorization for an issue of $2 million, 10-year, 12% bonds. Interest is payable semi-annually: January 2 and July 2. Broker's year-end is December 31.
Aug. 1 Broker issued $1,000,000 of bonds for $1,045,700 cash plus accrued interest.
2016
Mar. 1 Broker issued the remaining $1,000,000 face value of the bonds for 97.76 plus accrued interest.
July 2 Broker recorded the necessary entry related to the bond issue.
Required:
1. Record all necessary entries for the period July 2, 2015 to July 2, 2016 inclusive, including December 31, 2015, the year-end of the company.
2. Calculate the balance of the Bond Premium account in the general ledger at December 31, 2015.
3. Prepare the long-term liability section of Broker's balance sheet for December 31, 2015.
4. If the market interest rate is 18% at December 31, 2015, what would be the effect on the market value of Broker‘s bonds?
5. How much cash interest was paid to bondholders in 2016? How much interest expense was reported on the income statement for the year ended December 31, 2016? Why the difference? (Show calculations.)