On July1, 1992, Prospect Co. sold bonds with a face value of $500K and a coupon rate of 10 percent. The market interest rate (yield) on the date of sale was 12%. The bonds are dated July 1, 1992, and the maturity date is July 1, 1997. Interest is paid semiannually on December 31 and June 30. Prospect Enterprises uses the effective interest method to calculate interest and amortization expense. Answer the following questions:
a. The selling price of the bond (proceeds from issuance) on July 1, 1992.
b. The journal entry to record the bond issuance on July 1, 1992.
c. Prepare the journal entry to record the interest expense and coupon payments on 12/31/1992.
d. What is the interest expense that Prospect Co. will record for the fiscal year ending 12/31/1993?
e. What is the Net Book Value of the bond on December 31, 1994? How would the bond liability show up in Prospect Co.'s Balance Sheet on December 31, 1994?
f. What is the market value of the bond on June 30, 1994, if the market interest rate on that date is 8%?
g. Suppose Prospect Co. retires the bond early, on December 31, 1994 at a loss of $25K. How much cash did it pay to the Bondholders in order to retire the bond?
h. Prepare the journal entry to record the retirement of bonds on December 31, 1994.