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Compute effective interest rate or effective cost of bond

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Reference no: EM132615528

On September 1, 2016, Hussain Textile Mills Limited has issued $1,000,000, 12% debenture bond. Interest is payable on March 1 and September 1 and the bond matures in 5 years. Company policy is to amortize the bond discount or premium by straight-line method at each interest payment date and at year end. The company fiscal year ends at December 31. The company has issued $1,000 par value bond at $1,050 each.

You are required to

Question 1. Record the issuance of bond on September 2016

Question 2. December 31, 2016, to record accrued interest, and amortize the bond premium (make two entries)

Question 3. March 1 and September 1, 2017 to pay interest and amortize the bond premium

Question 4. December 31, 2017, to record accrued interest, and amortize the bond premium (make two entries)

Question 5. Determine the net liability of the company on Sep 1, 2016; December 31, 2016; and December 31, 2017.

Question 6. Compute the effective interest rate or effective cost of bond.

Reference no: EM132615528

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