Question: On January 1, 2012, Splash City issues $400,000 of 8% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the issue date is 9% and the bonds issued at $367,422.
Required: 1. Using an amortization schedule, show that the bonds have a carrying value of $369,706 on December 31, 2013.
2. If the market interest rate drops to 7% on December 31, 2013, it will cost $433,781 to retire the bonds. Record the retirement of the bonds on December 31, 2013.
