Calculating and recording bonds when stated rate and market rate are different [15-20 min]
Jon Spelman Co. issued $200,000 of 9%, 10-year bonds payable at a price of 106.755 on May 31, 2010. The market interest rate at the date of issuance was 8%, and the bonds pay interest semiannually.
Requirements
1. How much cash did the company receive upon issuance of the bonds payable?
2. Prepare an effective-interest amortization table for the bond premium, through the first two interest payments. Use Exhibit 10A-4 as a guide, and round amounts to the nearest dollar.
3. Journalize the issuance of the bonds on May 31, 2010, and, on November 30, 2010, payment of the first semiannual interest amount and amortization of the bond premium. Explanations are not required.
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