On January 1, 2006, Matrix Corporation issued $800,000, 5%,5-year bonds dated January 1, 2006, at 95. The bonds pay annual interest on January 1. The company uses the straight-line method of amortization and has a calendar year end.
Required:
a. What amount was received for the bonds?
b. Was the market interest rate equal to, greater than, or less than 5 percent at the date of issue? Explain.
c. What is the premium or discount amortization for the first interest period?
d. How much bond interest expense is recorded for the year end December 31, 2005?
e. What is the carrying value of the bonds on December31, 2009?
f. Prepare the entry to issue the bonds on January 1, 2006.
g. Prepare the necessary entry to record interest expense on December 31,2006.