Chapter 14, Problem 2C

One way for a corporation to accomplish long-term financing is through the issuance of long-term debt instruments in the form of bonds.

Required:

1. 1. Explain how to account for the proceeds from bonds issued with detachable stock purchase warrants.
2. 2. Contrast a serial bond with a term (straight) bond.
3. 3. For a 5-year term bond issued at a premium, why is the amortization in the first year of the life of the bond different using the interest method of amortization as opposed to the straight-line method? Include in your discussion whether the amount of amortization in the first year of the life of the bond is higher or lower using the interest method as opposed to the straight-line method.
4. 4. When a company sells a bond issue between interest dates at a discount, what journal entry does it make, and how is the subsequent amortization of bond discount affected? Include in your discussion an explanation of how the amounts of each debit and credit are determined.
5. 5. Explain how to account for and classify the gain or loss from the reacquisition of a long-term bond prior to its maturity.