A Company Issued 10-Year Bonds with a Par Value of $20,000,000

question 108

Essay

A company issued 10-year bonds with a par value of $20,000,000 and an 8% annual face on January 2, 2015. The issue price of the bond issue was $19,866,397 which reflected an 8.1% effective interest rate.
REQUIRED:
a Determine the effect on the accounting equation upon recording the issuance of the bonds.
b Determine the effect on the accounting equation upon recording the recognition of interest expense at December 31, 2015. Any premium or discount should be amortized using the effective interest rate method.
c Determine the effect on the accounting equation upon recording the interest paid to the bondholders on January 2, 2016.
d Determine the effect on the accounting equation upon recognizing the interest expense at December 31, 2016. Any premium or discount should be amortized using the effective interest rate method.

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Definitions:

Cognitive Processes

Mental activities involved in acquiring knowledge and understanding, including thinking, knowing, remembering, and problem-solving.

Physiological Processes

The functions and activities of living organisms and their parts, including all physical and chemical processes.

Bystander-Calculus Model

A psychological model explaining factors that influence an individual's decision to help or not help in an emergency situation, considering personal costs and benefits.

Labelling the Arousal

Labelling the arousal refers to the process of identifying and attributing the cause of physiological arousal to specific emotions or reactions.