Problem - HDC issued $2,000,000, 8-pecent bonds on 1 January, Year 1 when the annual market rate of interest was 10%. The bonds required HDC to make semiannual payments of 4% of face value, on June 30 and December 31 of each year. The bonds mature on December 31, Year 5. HDC amortizes bond premium/discount by the effective-interest method.
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Periods
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Present Value of $1
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Present Value of Ordinary Annuity of $1
|
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4%
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5%
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8%
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10%
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4%
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5%
|
8%
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10%
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|
5
|
0.822
|
0.784
|
0.681
|
0.621
|
4.452
|
4.329
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3.993
|
3.791
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|
10
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0.676
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0.614
|
0.463
|
0.386
|
8.111
|
7.722
|
6.710
|
6.145
|
Required (all computations are rounded to the nearest dollar)
1) Provide the journal entry when HDC issued the bonds on January 1, Year 1.
2) Provide the journal entry for recognizing interest expense and interest paid on June 30 and December 31,Year 1.
3) Show how HDC would report the bonds on its balance sheet on December 31, Year 1.