Accounting for Bonds
Response to the following problem:
Nemo Company authorized and sold $90,000 of 10%, 15-year bonds on April 1, 2009. The bonds pay interest each April 1, and Nemo's year-end is December 31.
Required:
1. Prepare journal entries to record the issuance of Nemo Company's bonds under each of the following three assumptions:
a. Sold at 97.
b. Sold at face value.
c. Sold at 105.
2. Prepare adjusting entries for the bonds on December 31, 2009, under all three assumptions. (Use the straight-line amortization method.)
3. Show how the bond liabilities would appear on the December 31, 2009, balance sheet under each of the three assumptions.
4. Interpretive Question: What condition would cause the bonds to sell at 97? At 105?