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Question
The following information pertains to a bond issue of the Atomic Corporation:
Maturity value: $1,000,000
Maturity date: January 31, 2015
Stated interest rate: 8%
Interest payments are made annually on December 31st
Date of issue: January 1, 2011
The bond is dated January 1, 2011
Effective (market) interest rate: 10%
Requirements:
1. At what price were the bonds issued?
2. Using the effective interest method, prepare an amortization schedule showing annual interest expense, annual discount or premium amortization, and carrying value through December 31, 2013.
3. Prepare the necessary journal entries on January 1, 2011 and December 31, 2012.
4. How should the bonds be shown on Atomic's December 31, 2011 balance sheet?
Answer
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