Question
In: Accounting
On January 1, 2021, Essence Communications issued $650,000 of its 10-year, 6% bonds for $561,663. The...
On January 1, 2021, Essence Communications issued $650,000 of its 10-year, 6% bonds for $561,663. The bonds were priced to yield 8%. Interest is payable semiannually on June 30 and December 31. Essence Communications records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2021, the market interest rate for bonds of similar risk and maturity was 7%. The bonds are not traded on an active exchange. The decrease in the market interest rate was due to a 1% decrease in general (risk-free) interest rates. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
1. Using the information provided, estimate the
fair value of the bonds at December 31, 2021.
2. to 4. Prepare the journal entries to record
interest on June 30, 2021 (the first interest payment), on December
31, 2021 (the second interest payment) and to adjust the bonds to
their fair value for presentation in the December 31, 2021, balance
sheet.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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