3-4. On December 31, 2019, Potter Corporation issued €2,000,000, 6%, 5-year bonds. Interest is paid annually on December 31. The company uses the effective-interest method of amortization.
Periods | Present value of $1 (4%) | Present value of $1 (8%) | Present value of ordinary annuity of $1 (4%) | Present value of ordinary annuity of $1 (8%)
-|-|-|-|-
4 | 0.85480 | 0.73503 | 3.62990 | 3.31213
5 | 0.82193 | 0.68058 | 4.45182 | 3.99271
Instructions
(a) Assume that the market interest rate is 8% at issuance.
1) Compute the issuance price of bonds and prepare the journal entry for the issuance of bonds.
2) Prepare a bond amortization schedule for the first two interest payment dates. (Round to the nearest dollar.)
3) Prepare the journal entries that Potter Corporation would make on December 31, 2019, and December 31, 2020, and December 31, 2021 related to the bond issue.
(b) Assume that the market interest rate is 4% at issuance.
1) Compute the issuance price of bonds and prepare the journal entry for the issuance of bonds.
2) Prepare a bond amortization schedule for the first two interest payment dates. (Round to the nearest dollar.)
3) Prepare the journal entries that Potter Corporation would make on December 31, 2019, and December 31, 2020, and December 31, 2021 related to the bond issue.
4) On January 1, 2022, Potter Corporation redeemed the bonds at 101. Prepare the journal entry for the redemption of bonds.