Problem -
Dantonio Company issued six-year, 7.5% bonds with a total face value of $920,000 on January 1, 2015. Interest is paid semi-annually on June 30 and December 31. The market rate of interest on this date was 6%. Dantonio uses the effective interest rate method.
Required:
1. Determine the proceeds of the bond sale on 1/1/15. Explain your method of calculation.
2. Did this bond sell at a premium or discount? In 1-2 sentences explain why it sold at a premium or discount.
3. Prepare the six-year bond amortization schedule for these bonds. There are examples in your notes.
4. Prepare journal entries to record (1) the sale of the bonds on January 1, 2015, (2) the interest payment for the period ended June 30, 2015 and, (3) the final interest and face value payment at maturity on December 31, 2020.
5. Show how the balance sheet would report the bond liability and related premium/discount on December 31, 2016.