Response to the following problem:
A company issued 10-year bonds with a par value of $20,000,000 and an 8% annual face on January 2, 2007. The issue price of the bond issue was $19,866,397 which reflected an 8.1% effective interest rate.
Required:
a) Determine the effect on the accounting equation upon recording the issuance of the bonds.
b) Determine the effect on the accounting equation upon recording the recognition of interest expense at December 31, 2007. Any premium or discount should be amortized using the effective interest rate method.
c) Determine the effect on the accounting equation upon recording the interest paid to the bondholders on January 2, 2008.
d) Determine the effect on the accounting equation upon recognizing the interest expense at December 31, 2008.
Any premium or discount should be amortized using the effective interest rate method.