Response to the following problem:
Tron Corp. was authorized to issue $500,000 of face value bonds, as follows:
Date of authorization January 1, 2018
Term 3 years
Interest rate 12%
Interest payment dates Semi-annually on June 30 and December 31
The corporation issued $250,000 of bonds on January 1, 2018
Required: Answer the questions for each of these independent cases.
Case A: the bonds are issued at face value.
Case B: the bonds are issued for $256,000.
Case C: the bonds are issued for $242,800.
1. Calculate
a. the amount of interest paid on the issued bonds every interest payment date;
b. the amount of amortization, if any, applicable to each interest payment date (use the straight-line method of amortization).
2. Prepare journal entries to record
a. the issue of the bonds;
b. the payment of interest and recording of amortization, if any, on June 30, 2018;
c. the payment of interest and recording of amortization, if any, on December 31, 2018.
3. Calculate the amount of interest expense shown in the income statement at December 31, 2018. Is this amount the same as cash paid by Tron in 2018? Why or why not?
4. On December 31, 2018, the corporation exercised a call feature included in the bond indenture and retired the $250,000 of face value bonds issued January 1, 2018. The bonds were called at 103. Prepare the December 31 journal entry to record the exercise of the call option. Assume interest and amortization journal entries have been recorded.