Question - Pearson Company issued to Wiley Company $670,000 of three-year, 8% bonds dated 1 December 2012. Interest is payable semi-annually on 31 May and 30 November. The bonds were issued on 28 February 2013. The effective interest rate was 6%.
Required:
1. Calculate the present value of the bond (the proceeds) assuming that it had been issued on 1 December 2012.
2. Prepare a bond amortization schedule. Use the effective-interest method of amortization.
3. Calculate the proceeds of the bond reflecting the fact that it was issued on 28 February 2013. Also calculate the accrued interest.
4. Prepare the journal entries for Feb 28th, May 31st, Nov 30th and Dec 31st.
5. How much amortization reduces the interest expense for the period ended 31 May 2013.