A Company Issued Five-Year Bonds with a Par Value of $35,000,000

question 161

Essay

A company issued five-year bonds with a par value of $35,000,000 and a 7% annual face on January 2,2017.The issue price of the bond issue was $35,216,127 which reflected a 6.85% 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 31,2017.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 2,2018.
d)Determine the effect on the accounting equation upon recognizing the interest expense at December 31,2018.Any premium or discount should be amortized using the effective interest rate method.

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Definitions:

Carbon Tetrachloride

A colorless liquid with the formula CCl4, historically used as a cleaning agent, fire extinguisher, and refrigerant, now recognized as a carcinogen.

Pyridine

A basic heterocyclic organic compound with the formula C5H5N, featuring a ring structure similar to benzene but with one methine group (\(CH\)) replaced by a nitrogen atom.

Aromatic

Compounds that contain a planar ring of atoms that are stabilized by a delocalization of pi electrons according to Huckel's rule.

Antiaromatic

Antiaromatic compounds are cyclic, planar molecules that possess 4n π electrons (where n is an integer) and are destabilized due to their electronic structure, contradicting the stability seen in aromatic compounds.