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Prepare journal entry to record the retirement of the bonds

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Question

Straton Corporation issued $10,000,000 of 7%, 20 -year bonds at discount. The bonds are retired prior to maturity at 103. The book value of the bonds is $9,853,000 at this time. Straton Corporation amortizes bond premiums using effective-interest method.

1) Was the contract rate on the bonds at the time of issuance greater or less than the market rate of interest? Explain.

2) Prepare journal entry to record the retirement of the bonds.

3) Assume that the bonds were redeemed at maturity. Would the total cash interest paid be different if the company used the straight-line method of amortization of premiums? Explain.

Reference no: EM132322390

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