Reference no: EM133130240
Question - On January 1, 2020, Aumont Company sold 12% bonds having a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective interest basis.
a. Prepare the journal entry at the date of the bond issuance.
b. Prepare a schedule of interest expense and bond amortization for 2020-2022.
c. Prepare the journal entry to record the interest payment and the amortization for 2020.
d. Prepare the journal entry to record the interest payment and the amortization for 2022.
e) The CEO of the Aumont company calls you for a meeting because he is very concerned about two issues. 1) He is worried that he needs to raise at least 620,000 dollars for the new manufacturing facility that will be financed with this bond issuance. Please specify specific recommendations to modify the bond indenture so that the necessary funds can be raised. 2) He is very worried about the interest expense that will hit the financial statements. Please outline and explain how you can use financial statement information and your expertise in lowering the anxiety level of the CEO. Please think about ratios and interest capitalization rules given that the proceeds of the bond will be used for a qualifying asset.
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