Reference no: EM132982190

Question - Scott Ltd issued $400,000, 7%, 20-year bonds on 1 January 2017, when the market interest rate was 8%. The bonds will pay interest annually on 1 January. Scott Ltd uses the effective interest rate method to amortise a bond premium or discount.

a) NEED journal entry to record the issuance of the bonds. Use the present value tables in the textbook (Appendix E), and show your calculations. After applying the PV factors, you may round to the nearest dollar.

b) What is the total amount of interest expense to be recognised over the life of the bonds, assuming that they are not redeemed before maturity?

c) Assume the bonds were issued at $360,728. Prepare the AJE required on 31 July 2017, the end of the financial year. Assume an annual accounting period ending on that date. Round to two decimal places.

d) Need the first interest payment JE on 1 January 2018.

e) On 1 January 2019, when the carrying value of the bonds was $362,513, the bonds were redeemed at 102.

i) Need the journal entry to record the redemption.

ii) On the date of redemption, was the market interest rate greater than, less than, or equal to 7%? How do you know?

iii) Assume that you recognised a gain or loss in the redemption JE above. Would this gain or loss be OCI or classified under Other Income and Expense? How is this justified?