(Learning Objectives 1, 6: Issue bonds at a discount; amortize using thestraight-line method; report bonds payable and accrued interest payable on the balancesheet) On February 28, 2018, Shark Corp. issued 10%, 10-year bonds payable with a facevalue of $1,500,000. The bonds pay interest on February 28 and August 31. The companyamortizes bond discount using the straight-line method.Requirements1. If the market interest rate is 9% when Shark Corp. issues its bonds, will the bonds bepriced at par, at a premium, or at a discount? Explain.2. If the market interest rate is 11% when Shark Corp. issues its bonds, will the bonds bepriced at par, at a premium, or at a discount? Explain.3. Assume that the issue price of the bonds is 94. Journalize the following bond transactions.a. Issuance of the bonds on February 28, 2018b. Payment of interest and amortization of the bond discount on August 31, 2018c. Accrual of interest and amortization of the bond discount on December 31, 2018 (fiscalyear-end)d. Payment of interest and amortization of the bond discount on February 28, 20194. Report interest payable and bonds payable as they would appear on Shark Corp.’s balancesheet at December 31, 2018.
(Learning Objectives 1, 6: Issue bonds at a discount; amortize using the
straight-line method; report bonds payable and accrued interest payable on the balance
sheet) On February 28, 2018, Shark Corp. issued 10%, 10-year bonds payable with a face
value of $1,500,000. The bonds pay interest on February 28 and August 31. The company
amortizes bond discount using the straight-line method.
Requirements
1. If the market interest rate is 9% when Shark Corp. issues its bonds, will the bonds be
priced at par, at a premium, or at a discount? Explain.
2. If the market interest rate is 11% when Shark Corp. issues its bonds, will the bonds be
priced at par, at a premium, or at a discount? Explain.
3. Assume that the issue price of the bonds is 94. Journalize the following bond transactions.
a. Issuance of the bonds on February 28, 2018
b. Payment of interest and amortization of the bond discount on August 31, 2018
c. Accrual of interest and amortization of the bond discount on December 31, 2018 (fiscal
year-end)
d. Payment of interest and amortization of the bond discount on February 28, 2019
4. Report interest payable and bonds payable as they would appear on Shark Corp.’s balance
sheet at December 31, 2018.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 10 images