Chapter 10, Problem 4CP

Comparing Bonds Issued at Par, Discount, and Premium

Sikes Corporation, whose annual accounting period ends on December 31, issued the following bonds:

Date of bonds: January 1, 2018

Maturity amount and date: $200,000 due in 10 years (December 31, 2027)

Interest: 10 percent per year payable each December 31

Date issued: January 1, 2018

Required:

1. 1. For each of the three independent cases that follow, provide the amounts to be reported on the January 1, 2018, financial statements immediately after the bonds are issued:

TIP: See Exhibit 10.5 for an illustration distinguishing Bonds Payable from their carrying value.

1. 2. Someone posted the following comment on an investment discussion forum: “Why would I buy a bond at a premium when I can find one at a discount? Isn’t that stupid? It’s like paying list price for a car instead of negotiating a discount.” Write a brief message in response to the posting.