Comparing Bonds Issued at Par, Discount, and Premium (Straight-Line Amortization)
Akron Corporation, whose annual accounting period ends on December 31, issued the following bonds:
Date of bonds: January 1, 2011
Maturity amount and date: $100,000 due in 10 years
Interest: 10 percent per annum payable each June 30 and December 31
Date sold: January 1, 2011
Straight-line amortization is used.
Required:
1. Provide the following amounts to be reported on the December 31, 2011, financial statements:
| Issued at Par Case A | at 99 Case B | at 104 Case C |
a.Interest expense | $ | $ | $ |
b. Bonds payable |
|
|
|
c.Unamortized premium or discount |
|
|
|
d.Net liability |
|
|
|
e.Stated rate of interest |
|
|
|
f.Cash interest paid |
|
|
|
2. Explain why items (a) and (f) in requirement (1) are different.
3. Assume that you are an investment adviser and a retired person has written to you asking, “Why should I buy a bond at a premium when I can find one at a discount? Isn't that stupid? It’s like paying list price for a car instead of negotiating a discount." Write a brief letter in response to the question.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.