On January 1, 2021, Splash City issues $460,000 of 8% bonds, due in 15 years, with...

On January 1, 2021, Splash City issues $460,000 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 $422,536.

2. If the market interest rate drops to 6% on December 31, 2022, it will cost $542,233 to retire the bonds. Record the retirement of the

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Expert Solution

Bond is a fixed income security in which issuer promises pay a series of interest payment and repay the principle on maturity the investor. The effective interest rate is also called as market rate. It is the investor's yield maturity. When the effective interest rate is higher as compared bond coupon rate then, the bonds were issued at a discount. The Discount is then amortised over the period of bond by using effective interest rate method. The discount given on bond issuance is amortised over the life of the bond. If the bond is redeemed before maturity then unamortised discount amount is credited at the time of redemption and the profit/(loss) on redemption of bond is recognised.

ekkarill92 answered 1 year ago

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