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On January 1, 2013, Auchi Industrial issued $400,000 of its 20-year, 8% bonds. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Auchi Industrial records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2013, the fair value of the bonds was $335,000 as determined by their fair value in the over-the-counter market.

Required:

a) Determine the price of the bonds at January 1, 2013, and prepare the journal entry to record their issuance.

b) Prepare the journal entry to record interest on June 30, 2013 (the first interest payment).

c) Prepare the journal entry to record interest on December 31, 2013 (the second interest payment).

d) Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2013, balance sheet.

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  • Category:- Accounting Basics
  • Reference No.:- M939685

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