Q1. What is a bond? Identify and discuss the different characteristics and features bonds may possess.
Q2. Goodwin, Inc issued $2,000,000 of 5%, 20-year bonds. The bonds were issued at par value on January 1. Interest is payable each June 30 and December 31.
(a) Prepare the general journal entry to record the issuance of the bonds on January 1.
(b) Prepare the general journal entry to record the first interest payment on June 30.
Q3. Shaw Company issued 6%, 10-year bonds with a par value of $100,000. Interest is paid semiannually. The market interest rate on the issue date was 8%, and the issuer received $95,016 cash for the bonds. On the first semiannual interest date, what amount of cash should be paid to the holders of these bonds for interest? Hint: The amount of cash interest to be paid is a number between $2,800 and $3,300.
Q4. On January 1, Grissom Inc. issued 10-year, 5% bonds payable with a par value of $500,000, and received $490,000 in cash proceeds. The market rate of interest at the date of issuance was 5.5%. The bonds pay interest semiannually on July 1 and January 1. The issuer uses the straight-line method for amortization. Prepare the issuer's journal entry to record the first semiannual interest payment on July 1. Hint: Your debit to bond interest expense should be the sum of cash interest paid plus the amount of the discount amortized for the six-month period.
Q5. On January 1, Year 1 Hatcher Co. borrowed $150,000 cash by signing a 10% installment note that is to be repaid with 3 annual year-end payments of $60,316, the first of which is due on December 31, Year 1.
(a) Prepare the company's journal entry to record the note's issuance.
(b) Prepare the journal entries to record the first and second installment payments. Hint: You will need to calculate interest expense and reduction to note payable for each 12 month period using the effective interest method. Show your work! The amount of the cash payment was given to you above in part (a).