Sierra Vaults Corporation produces and sells burial vaults. On July 1, 2010, Sierra Vaults Corporation issued $18,000,000 of 10-year, 6% bonds at par. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions:
1. Illustrate the effects of the issuance of the bonds on July 1, 2010, on the accounts and financial statements.
2. Illustrate the effects of the first semiannual interest payment on December 31, 2010, on the accounts and financial statements.
3. Illustrate the effects of the payment of the face value of bonds at maturity on the accounts and financial statements.
4. If the market rate of interest were 7% on July 1, 2010, would the bonds have sold at a discount or premium?