Problem

Bond Interest (Bonds Issued at Face Value)Lake Company obtained authorization toissue 10-y...

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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