Question - Bond Issued at a Premium
On January 1, 2003, Buster Corporation issued 100 bonds with a par value of $ 1,000 each. The stated interest rate on the bond is 10% payable annually on December 31 of each year. The market rate is 8%. The bonds will mature 4 years from the date of issue (December 31, 2006).
(a) Compute the issue price of the bonds on January 1, 2003.
(b) Provide the journal entry to record the issuance of the bonds on January 1, 2003.
(c) Provide the journal entry that Buster should make on December 31, 2003 assuming the effective interest method.
(d) Show how the bond liability and the related accounts will appear on the Balance Sheet of Buster on December 31, 2003.