On March 1, 2008, Jackie Chan Company sold its 5-yeat, $1,000 face value, 9% bon

Question

On March 1, 2008, Jackie Chan Company sold its 5-yeat, $1,000 face value, 9% bonds dated March 1, 2008, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first interest payment date is September 1, 2008. Chan uses the effective interest method of amortization. Bond issue costs were incurred in preparing and selling the bond issue. The bonds can be called by Chan at 101 at any time on or after March 1, 2009. Instructions: a. (1) How would the selling price of the bonds be determined? (2) Specify how all items related to the bonds would be presented in a balance sheet prepared immediately after the bond issue was sold. b. What items related to the bond issue would be included in Chan

Explanation / Answer

Hi, Please find the answers as follows: 1 The selling price of the bonds would equal to the present value of all of the expected net future cash outflows discounted at the effective annual interest rate (yield) of 11 percent. The present value is the sum of the present value of the bond's maturity amount (face value) plus the present value of the series of future semiannual interest payments. 2. Immediately after the bond issue is sold, the current asset (cash) would increase by the proceeds from the sale of the bond issue. A noncurrent liability, bonds payable, would be recorded in the balance sheet at the face value of the bonds less the the amount of discount. The bond issue costs will get classified as a

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