Reference no: EM133124150

Question - In the following two independent cases, the company closes its books on December 31:

1. Teal Mountain Inc. sells $1.84 million of 8% bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The bonds' due date is September 1, 2023. The bonds yield 10%.

2. Headlands Ltd. sells $6.50 million of 9% bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The bonds' due date is June 1, 2024. The bonds yield 8%. On October 1, 2021, Headlands buys back $1.30 million worth of bonds for $2.10 million, including accrued interest.

Required -

1) For situation 1, use the effective interest method for discount and premium amortization and prepare any necessary amortization tables. (Hint: Refer to Chapter 3 for tips on calculating.)

2) Prepare all of the relevant journal entries from the time of sale until the date indicated. For situation 1, prepare the journal entries through December 31, 2021. Assume that no reversing entries were made. Use the amounts arrived at from using (1) factor tables, (2) a financial calculator, or (3) Excel function PV from the time of sale until the date indicated. Use the effective interest method for discount and premium amortization. (Hint: Refer to Chapter 3 for tips on calculating.)

3) For situation 2, use the effective interest method for discount and premium amortization and prepare any necessary amortization tables. (Hint: Refer to Chapter 3 for tips on calculating.)

4) Prepare all of the relevant journal entries from the time of sale until the date indicated. For situation 2, prepare the journal entries through December 31, 2022. Assume that no reversing entries were made. Use the amounts arrived at from using the financial calculator. Use the effective interest method for discount and premium amortization. (Hint: Refer to Chapter 3 for tips on calculating.)