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Bond issuance & amortization

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1. Stowers Research issues bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds have a $20,000 par value and an annual contract rate of 10%, and they mature in 10 years.

Required

For each of the following three separate situations, (a) determine the bonds' issue price on January 1, 2011, and (b) prepare the journal entry to record their issuance.

The market rate at the date of issuance is 8%.

The market rate at the date of issuance is 10%.

The market rate at the date of issuance is 12%.

2. Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,728,224.

Required

Prepare the January 1, 2011, journal entry to record the bonds' issuance.

For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense.

Determine the total bond interest expense to be recognized over the bonds' life.

Prepare the first two years of an amortization table like Exhibit 10.7 using the straight-line method.

Prepare the journal entries to record the first two interest payments.

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