Cactus Construction sells $1,000,000 of 8% bonds on January 1, 20XX. The bonds are unsecured but registered to the name of the purchaser. The bonds are due in 5 years, with interest payable annually at year-end.
1.Determine the value of the bonds if the market interest rate is 9%. Show the effect on the accounting equation (by account title) AND the journal entries at the date of issuance and at year-end.
2.Determine the value of the bonds if the market interest rate is 7%. Show the effect on the accounting equation (by account title) AND the journal entries at the date of issuance and at year-end.