Southridge Company Prepared a Bond Issue Dated January 1, 2016

question 116

Essay

Southridge Company prepared a bond issue dated January 1, 2016. On January 1, 2016, the company issued $100,000 of its par value bonds for $82,700. The bonds mature in thirty years and have a coupon rate of interest of 3% per year and the market rate at the date of issue is 4%. Interest is payable annually on December 31 which is also the year-end date for Southridge. Southridge does not use a discount or a premium account in its records. The effective interest method of amortization is used. Round the entry items to the nearest whole dollar amounts.
Required:
A.Prepare the journal entry to record the sale of bonds on January 1, 2016.
B.Prepare the journal entry to record interest expense at December 31, 2016.No adjusting journal entries have been made during the year.
C.Show how the bonds would be reported on the balance sheet of Southridge Company at December 31, 2016.

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Definitions:

Market Rate

The prevailing interest rate or cost of borrowing expressed as a percentage, available in the financial markets.

Economic Conditions

Refers to the state of a country's economy at a certain time, including factors like inflation, unemployment, and GDP growth.

Straight-Line Method

A depreciation technique that allocates an equal amount of depreciation to each year over the asset's useful life.

Double-Declining-Balance Method

A method of depreciation that provides for a declining periodic depreciation expense over the expected useful life of an asset.