A Company Issued 10%, 10-Year Bonds with a Par Value

question 109

Essay

A company issued 10%, 10-year bonds with a par value of $1,000,000 on January 1, at a selling price of $885,295 when the annual market interest rate was 12%. The company uses the effective interest amortization method. Interest is paid semiannually each June 30 and December 31.
(1) Prepare an amortization table for the first two payment periods using the format shown below:
$\begin{array}{|l|l|l|l|l|l|}\hline\text { Semiannual } & \text { Cash } & \text { Bond } & & & \\\hline \text { Interest } & \text { Interest } & \text { Interest } & \text { Discount } & \text { Unam ortized } & \text { Carrying } \\\hline \text { Period } & \text { Paid } & \text { Expense } & \text { Amortization } & \text { Discount } & \text { Value } \\\hline\\\hline\\\hline\\\hline\\\hline\end{array}$ (2) Prepare the journal entry to record the first semiannual interest payment.

---

Definitions:

Completely Accurate

A term indicating that information is free from errors and precisely correct in every detail.

Future

A term referring to the time or a period that is yet to come, often used in the context of planning or forecasting.

Expected Future Cost

Anticipated expenses for resources, production, or projects, projected based on current data and trends.

Historical Cost

The original financial value of an economic item, typically based on its acquisition cost at the time of purchase or construction.