PR 14-2A On July 1, 2010, Borrower Industries Inc. issued $32,000,000 of 10-year, 12% bonds at an

PR 14-2A On July 1, 2010, Borrower Industries Inc. issued $32,000,000 of 10-year, 12% bonds at an effective interest rate of 13% receiving cash of $32,237,139. Interest on the bonds is payable semi annually on December 31 and June 30. The fiscal year of the company is calendar year.

 

Instructions:

1. Journalize the entry to record the amount of cash proceeds from the scale of the bonds.

2. Journalize the entries to record the following:

a. The first semi annual interest payment on December 31, 2010, and the amortization of the bond discount, using the straight-line method.(Round to the nearest dollar)

b. The interest payment on June 30, 2011, and the amortization of the bond discount, using the straight-line method.(Round to the nearest dollar)

3. Determine the total interest expense for 2010.

4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?

5. (Appendix 1) Compute the price of $30,237,139 received for the bonds by using the tables of present value in Appendix A at end of text.(Round to the nearest dollar) For 12% number 1 period, it is 0.89286. For 13% it is 0.88496.

File name: Borrower-Industries-Inc.xls File type: application/vnd.ms-excel Price: $6