Spearhead Specialties issued a 2-year, $150,000, 14% debenture on January 1, 20X3 dated as of that date. The bond will pay interest every June 30 and December 31, with the principal to be paid on December 31, 20X4
The effective interest rate on the bond is 10%, and the company uses effective-interest amortization.
Given this information and using the present value tables
a. determine the selling price for the bond.
b. provide the journal entry on January 1, 20X3.
a. $150,000 × .8227 = $123,405
$10,500 × 3.5460 = 37,233
(n = 4, i = 5 ) $160,638
b. Cash 160,638
Premium on Bond Payable 10,638
Bonds Payable 150,000
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