ACCT 201 Principles of Financial Accounting - Spring 2003
Sections 001 and 002 - Dr. Fred Barbee - Homework Assignment #10 - Chapter 10
Computing Bond Price and Recording Issuance

PDQ Company issues $500,000 of 8%, 6-year bonds dated January 1, 2002, that pay interest semiannually on June 30 and December 31. On the issue date the market rate of interest was 10%.

Required:

  1. Calculate the issue price of the bonds and prepare the January 1, 2002 journal entry to record the bonds' issuance.

  2. Use the straight-line method to amortize the bond discount. Use Exhibit 10-7 as an example.

  3. Prepare two journal entries recording the first two interest payments.

  4. Use the effective-interest method to amortize the bond discount. Use Exhibit 10-8 as an example.

  5. Prepare two journal entries recording the first two interest payments.