Question -
Q1) Storall Company issued USD 200,000 face value of 16 percent, 20- year junk bonds on 2010 July 1. The bonds are dated 2010 July 1, call for semiannual interest payments on July 1 and January 1, and were issued to yield 12 percent (6 percent per period).
a. Compute the amount received for the bonds.
b. Prepare an amortization schedule similar to that in Exhibit 45. Enter data in the schedule for only the first two interest periods. Use the interest method.
c. Prepare journal entries to record issuance of the bonds, the first six months' interest expense on the bonds, and the adjustment needed on 2011 May 31, assuming the company's fiscal year ends on that date.
2) Ecological Water Filtration, Inc., is going to issue USD 400,000 face value of 10 percent, 15-year bonds. The bonds are dated 2009 June 30, call for semiannual interest payments, and mature on 2024 June 30.
a. Compute the price investors should offer if they seek a yield of 8 percent on these bonds. Also, compute the first six months' interest, assuming the bonds are issued at this price. Use the interest method and calculate all amounts to the nearest dollar.
b. Repeat part (a), assuming investors seek a yield of 12 percent.