Bond Interest (Bonds Issued at Face Value)
Blue Mountain Power Company obtained authorization to issue 20-year bonds with a face value of$10 million. The bonds are dated May 1,2011, and have a contract rate of interest of 10 percent.They pay interest on November 1and May 1. The bonds were issued onAugust 1,2011, at 100plus three-months’ accrued interest.
Instructions
Prepare thenecessary journal entries ingeneral journal form on:
a. August 1,2011, torecord the issuance of the bonds.
b. November 1,2011, to record the first semiannual interest payment onthebond issue.
c. December 31 , 2011 , to record interest expense accrued through year-end. (Round to thenearestdollar.)
d. May 1, 2012, torecord the second semiannual interest payment. (Round tothe nearest dollar.)
e. What wasthe prevailing market rate ofinterest onthe date that the bonds were issued? Explain.
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