Calculating and recording bonds when stated rate and market rate are different [15-20 min]
VEX Company issued $500,000 of 14%, 10-year bonds payable at a price of 90.226 on March 31, 2010. The market interest rate at the date of issuance was 16%, 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 discount through the first two interest payments. Use Exhibit 10A-3 as a guide, and round amounts to the nearest dollar.
3. Journalize the issuance of the bonds on March 31, 2010, and on September 30, 2010, payment of the first semiannual interest amount and amortization of the bond discount. Explanations are not required.
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