1. P & P Products issued $1,800,000 of face value bonds on April 1, 2012. The bonds were sold for $1,908,000. They pay 8% interest each year on December 31st and come due in 10 years from their date of January 1, 2012. The company uses the effective interest methos to amortize any premium or discounts. The market rate is 6%.
Required: Prepare a bond amortization schedule showing the interest expense, interest payable/cash, and amount of amortization and carrying value of the bond for the first two years. Prepare entries for the issuance of the bonds and payment of interest for 2012 and 2013. ( You can disregard years 3-10)
2. On January 1, 2012, P & P Products purchased $1,000,000 of the five year, 8% bonds Delta Products in the open market for $960,00. Delta Products is a wholly-owned subsidiary of P & P Products. THe bonds are dated and were issued by Delta Products on January 1, 2010. The bonds pay interest every January 1st and July 1st. The effective interest method is used for amortization purposes. The market rate is 10%.
Required: Make any necessary entries on Delta Products books.