Case 1
On March 1, 2011, Silicon Company sold its 5-year, $1,000 face
value, 9% bonds dated March 1, 2011 at an effective annual interest rate
(yield) of 11%. Interest is payable semiannually, and the first interest
payment date is September 1, 2011. Silicon uses the effective-interest
method of amortization. Bond issue costs were incurred in preparing and selling
the bond issue. The bonds can be called by Silicon at 101 at any time on
or after March 1, 2012
Answer the following questions:
(a) (1) How would the selling price of the bond be determined?
(2) Specify how all items related to the bonds would be presented in a
balance sheet prepared Immediately after the bond issue was sold.
(b) What items related to the bond issue would be included in Silicon ’s
2011 income statement, and how would each be determined?
(c) Would the amount of bond discount amortization using the
effective-interest method of amortization be lower in the second or third year
of the life of the bond issue? Why?
(d) Assuming that the bonds were called in and retired on March 1, 2012,
how should Silicon report the retirement of the bonds on the 2012 income statement?
TUTORIAL
PREVIEW
2)
Immediately
after the bond issue is sold, the current asset, cash, would be increased by
the proceeds from the sale of the bond issue. A noncurrent liability,
File name: Silicon Company.xlsx File type: .xlsx PRICE: $8
