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District WaterCompany issued 10-year bonds with a face value of $100,000 and astated interest rate of 8.0%.
The bonds are dated April 1,2016, and call for semiannual interest payments on each April 1 andOctober 1.
Due to market fluctuations,the bonds actually sold to yield 10.0% per year.
1. Compute the amount received for thebonds.
2. Compute the first interestand amortization amounts for the October 1, 2016, payment.
3. Prepare journal entries forthe issuance of the bonds and for the first interest payment.
4. Compute the second interestand amortization amounts for the April 1, 2017, payment.
SOLUTION:

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Jean Keeling
Jean KeelingLv2
28 Sep 2019

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On April 1, 2015, Hepburn Company issued 8 percent bonds with aface value of $800,000. The bonds were issued at a price to yieldat 10 percent return. The bonds pay semiannual interest on April 1and October 1. The bonds are dated April 1, 2015, and are due infive years. At the time of issuance, Hepburn paid $4,000 for legalcosts and brokerage expenses associated with the bond issuance. Thecompany uses the straight-line method of amortization for issuecosts and the effective interest method of amortization for bondpremium or discount and records amortization on each of thesemiannual interest payment dates. Hepburn Company’s year endsDecember 31. On June 1, 2016, Hepburn retired $200,000 of bonds at103 plus accrued interest.

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A company issues $4,000,000 of 6%, 15-year bonds dated January1, 201, that pay interest semiannually on June 30 and December 31.The bonds are issued at a price of $3,456,448.

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III. Bonds Payable issue and amortization

Carson Company issued $1,000,000 of corporate bonds on January 1, 2016. The bonds have a stated rate of 4 percent, and a 10 year life. The bonds were issued to yield 3 percent. The bonds pay interest annually, each December 31, starting December 31, 2016.

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