Chapter 10: Q8DQ (page 473)
Does the straight-line or effective interest method produce an interest expense allocation that yields a constant rate of interest over a bond’s life? Explain.
Yes, the effective interest methodproduces an interest expense at a fixed interest rate during the whole life of the bond.
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Hillside issues \(4,000,000 of 6%, 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of \)3,456,448.
Required
1. Prepare the January 1, 2017, journal entry to record the bonds’ issuance.
2. For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense.
3. Determine the total bond interest expense to be recognized over the bonds’ life.
4. Prepare the first two years of an amortization table like Exhibit 10.7 using the straight-line method.
5. Prepare the journal entries to record the first two interest payments
Question: Using the bond details in QS 10-4, confirm that the bonds’ selling price is approximately correct (within $100). Use present value tables B.1 and B.3 in Appendix B.
Question: Describe the two basic types of pension plans.
On January 1, 2017, MM Co. borrows \(340,000 cash from a bank and in return signs an 8% installment note for five annual payments of \)85,155 each, with the first payment due one year after the note is signed.
1. Prepare the journal entry to record issuance of the note.
2. For the first $85,155 annual payment at December 31, 2017, what amount goes toward interest expense? What amount goes toward principal reduction of the note?
Refer to the bond details in Problem 10-5B.
Required
Prepare the journal entries to record the first two interest payments
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