Question:

On March 1, 2008, Jackie Chan Company sold its 5 year, $1,000 face value, 9 percent bonds dated March 1, 2008, at an effective interest rate yield of 11%. Interest is payable semi-annually, and the first interest payment date is September 1, 2008. Chan uses the efficient interest method of amortization. Bond issue costs were incurred in preparing and selling the bond issue. The bonds will be called by Chan at 101 at any time on or after March 1, 2009.

Instructions:

A.

1) How could the selling price of the bonds be determined"

2) Identify how all items related to the bonds would be presented in a balance sheet prepared instantly after the bond issue was sold.

B. what items related to the bond issue would be included in Chan's 2008 income statement, and how could each be determined?

C. Would the amount of bond discount amortization using the efficient interest method of amortization be lower in the second or third year of the life of the bond issue? Why?

D. Consider that the bonds were called in and retired on March 1, 2009, how should Chan report the retirement of the bonds on the 2009 income statement?