On January 1, 2014 Victory Falls Company issued $2,100,000 in bonds that mature in 5 years. The bonds have a stated interest rate of 8% and pay interest quarterly each year. When the bonds were sold, the market rate of interest was 6%. These bonds, when issued and sold, contained a call feature, which allowed the company to retire the bonds early, if they elected, for a one-time payment equal to 1% of the book value at the time of retirement.
A. Were the bonds issued at a discount, at a premium, or at par?
B. What was the issue price on January 1, 2014? Provide the journal entry to record the issuance of the bonds.
C. Construct two amortization schedule tables, one using the straight-line method and one using the effective-interest method, showing each quarterly payment (Complete this in a table using Excel or Word).
D. Provide the adjusting journal entries to record interest expense on June 30, 2014, and December 31, 2014 using the straight-line method.
E. Provide the two adjusting journal entries from part D using the effective-interest method.
F. What is the book value of the bonds on June 30, 2014 and December 31, 2014 using straight-line method?
G. What is the book value of the bonds on June 30, 2014 and December 31, 2014 using effective-interest method?
H. Victory Falls Company elected to retire the bonds early on June 30, 2015, after the final interest payment. Give the journal entries to record the interest expense on June 30, 2015 first, and then the retirement of bonds using the effective interest method.
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