In: Accounting
Jones Inc. issues $5,000,000 of 5% bonds that pay interest semiannually and mature in 10 years. Compute the bonds’ issue price and write down the corresponding journal entries assuming that the bonds’ effective interest rate is:
1) 4% per year market rate semiannually and please tell whether the bond is issued at a premium or discount. Please write down the appropriate journal entries for this discount or premium.
2) 6% per year market rate semiannually and please tell whether the bond is issued at a premium or discount. Please write down the appropriate journal entries for this discount or premium.
3) With the 6% per year market rate semiannually, please write down the journal entries reflecting this amortization of the premium or discount at the end of the first year (2 payments).