Problem: On January 1, 2008, Whitefeather Industries issued 300, $1,000 face value bond. The bonds have a five-year life and pay interest at the rate of 10%. Interest is paid semiannually on July 1 and January 1. The market rate on January 1 was 10%.
Required to do:
Problem 1. Calculate the issue price of the bonds and record the issuance of the bonds on January 1 2008.
Problem 2. Explain how the issue price would have been affected if the market rate of interest had been higher than 10%.
Problem 3. Prepare the journal entry to record the payment of interest on July 1, 2008.
Problem 4. Calculate the amount of interest accrued on December 31, 2008.