Question

1. If the market interest rate is 9% when Dolphin Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain. If the market interest rate is 11% when Dolphin Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain. Assume that the issue price of the bonds is 96. Journalize the following bonds payable transactions a. Issuance of the bonds on February 28, 2016. b. Payment of interest and amortization of the bond discount on August 31, 2016. c. Accrual of interest and amortization of the bond discount on December 31, 2016, the year-end. d. Payment of interest and amortization of the bond discount on February 28, 2017 2. 3. sheet at December 31, 2016 On February 28, 2016, Dolphin Corp. issues 10%, 10-year bonds payable with a face value of $2,100,000. The bonds pay interest on February 28 and August 31. Dolphin Corp. amortizes bond discount by the straight-line method.

Answer 1

1) When market rate of interest is lower than stated rate of interest then bond is issued at Premium

2) When market rate of interest is higher than stated rate of interest then bond is issued at discount

3) journal entries

Date	account and explanation	debit	credit
Feb 28	Cash (2100000*.96)	2016000
	Discount on bonds payable	84000
	Bond payable		2100000
	(To record bond issue)
Aug 31,2016	Interest expense	109200
	Discount on bonds payable (84000/20)		4200
	Cash (2100000*5%)		105000
	(To record interest)
Dec 31	Interest expense	72800
	Discount on bonds payable(4200*4/6)		2800
	Interest payable		70000
	(To record adjusting entry)
Feb 28	Interest payable	70000
	Interest expense (72800*2/4)	36400
	Discount on bonds payable		1400
	Cash		105000
	(To record interest paid)

4) Balance sheet presentation

Current liabilities
Interest payable		70000
Long liabilities
Bonds payable	2100000
Less: Discount on bonds payable	-77000	2023000
Total liabilities		2093000