a.
1.
Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.
Premium on bonds payable: It occurs when the bonds are issued at a high price than the face value.
Effective-interest amortization method: Effective-interest amortization method it is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.
In this method, first, interest expense is calculated based on the current carrying amount and market interest rate and cash interest payment is calculated based on the face value amount and stated interest rate and then, the different between the cash interest payment and interest expense is amortized as a decrease to the discount or premium.
To Journalize: Sale of the bonds.
2.
To Journalize: First semiannual interest payment and amortization of premium on bonds.
3.
To Journalize: Second semiannual interest payment and amortization of premium on bonds.
b.
The amount of bond interest expense for 2016.
c)
To explain: The reason why the company was able to issue the bonds for $23,829,684 rather than $22,000,000.
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Chapter 12 Solutions
EBK FINANCIAL & MANAGERIAL ACCOUNTING
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