Problem: A company issued 10%, 10-year, $10,000,000 par value bonds that pay interest semiannually on April 1 and October 1. The bonds are dated April 1, 2004 and are issued on that date. The market rate of interest for such bonds on April 1, 2004 is 8%. The company uses the effective interest rate method of amortization.
1. Prepare a bond amortization schedule.
2. Prepare all journal entries made for the issuance of the bonds, and the October 1, 2006 and April 1, 2008 interest payments.
3. Prepare the adjusting entry on December 31, 2012.
4. Assume that 50% of the bonds are called on October 2, 2012 at 98. Make the necessary journal entries. (Do not accrue interest for one day).
5. Assume that the market rate was 12% when the bonds were issued. Make the necessary journal entry to record the issuance of the bonds.