Chapter 9, Problem 9.51AP

(Learning Objectives 1, 6: Issue bonds at a discount; amortize using the straight-line method; report bonds payable and accrued interest payable on the balance sheet) On February 28, 2018, Dolphin Corp. issued 10%, 20-year bonds payable with a face value of $2,100,000. The bonds pay interest on February 28 and August 31 The company amortizes bond discount using the straight-line method.

Requirements

1. If the market interest rate is 9% when Dolphin Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

2. If the market interest rate is 11% when Dolphin Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

3. Assume that the issue price of the bonds is 94. Journalize the following bonds payable transactions.

1. a. Issuance of the bonds on February 28, 2018
2. b. Payment of interest and amortization of the bond discount on August 31, 2018
3. c. Accrual of interest and amortization of the bond discount on December 31 , 2018 (fiscal year-end)
4. d. Payment of interest and amortization of the bond discount on February 28, 2019

4. Report interest payable and bonds payable as they would appear on Dolphin Corp.’s balance sheet at December 31, 2018.