Bond Interest (Bonds Issued at Face Value)
Lake Company obtained authorization toissue 10-year bonds with a face value of $5million. Thebonds are dated June 1, 2011, and have a contract rate of interest of 6 percent. They pay interestonDecember 1and June 1.The bonds are issued onSeptember 1,2011,at 100 plus three months'accrued interest.
Instructions
Prepare the necessary journal entries in general journal form on:
a. September 1, 2011, to record theissuance ofthebonds.
b. December 1,2011, to record the first semiannual interest payment onthebond issue.
c. December 31,2011, to record interest expense accrued through year-end.
d. June 1,2012, to record the second semiannual interest payment.
e. What was the prevailing market rate of interest on the date that the bonds were issued? Explain.
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