Question 1 - On January 31, Doherty Logistics, Inc., issued five-year, 7% bonds payable with a face value of $8,000,000. The bonds were issued at 96 and pay interest on January 31 and July 31. Doherty Logistics, Inc., amortizes bonds by the straight-line method. Record (a) issuance of the bonds on January 31, (b) the semiannual interest payment and amortization of bond discount on July 31, and (c) the interest accrual and discount amortization on December 31.
Question 2 - Town Bank has $100,000 of 7% debenture bonds outstanding. The bonds were issued at 105 in 2012 and mature in 2032.
Requirements
1. How much cash did Town Bank receive when it issued these bonds?
2. How much cash in total will Town Bank pay the bondholders through the maturity date of the bonds?
3. Take the difference between your answers to Requirements 1 and 2. This difference represents Town Bank's total interest expense over the life of the bonds.
4. Compute Town Bank's annual interest expense by the straight-line amortization method. Multiply this amount by 20. Your 20-year total should be the same as your answer to Requirement 3.
Question 3 - Team Sports Ltd. is authorized to issue $5,000,000 of 5%, 10-year bonds payable. On December 31, 2012, when the market interest 559 560 rate is 6%, the company issues $4,000,000 of the bonds and receives cash of $3,702,450. Team Sports Ltd. amortizes bond discount by the effective-interest method. The semiannual interest dates are June 30 and December 31.
1. Prepare a bond amortization table for the first four semiannual interest periods.
2. Record issuance of the bonds payable on December 31, 2012; the first semiannual interest payment on June 30, 2013; and the second payment on December 31, 2013.
Question 4 - On June 30, 2012, the market interest rate is 8%. First Place Sports Ltd. issues $4,000,000 of 9%, 20-year bonds payable at a price of 109.895. The bonds pay interest on June 30 and December 31. First Place Sports Ltd. amortizes bonds by the effective-interest method.
Requirements
1. Prepare a bond amortization table for the first four semiannual interest periods.
2. Record the issuance of bonds payable on June 30, 2012; the payment of interest on December 31, 2012; and the payment of interest on June 30, 2013.