Question: Issuance of bonds; effective interest; amortization schedule; financia

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Question: Issuance of bonds; effective interest; amortization schedule; financial statement effects When Patey Pontoons issued 6% bonds on January 1, 2011, with a face amount of $600,000, the market yield for bonds of similar risk and maturity was 7%. The bonds mature December 31, 2014 (4 years). Interest is paid semiannually on June 30 and December 31. Required: 1.Determine the price of the bonds at January 1, 2011. -------------------------------------------------------------------------------- 2.Prepare the journal entry to record their issuance by Patey on January 1, 2011. -------------------------------------------------------------------------------- 3.Prepare an amortization schedule that determines interest at the effective rate each period. -------------------------------------------------------------------------------- 4.Prepare the journal entry to record interest on June 30, 2011. -------------------------------------------------------------------------------- 5.What is the amount(s) related to the bonds that Patey will report in its balance sheet at December 31, 2011? -------------------------------------------------------------------------------- 6.What is the amount(s) related to the bonds that Patey will report in its income statement for the year ended December 31, 2011? (Ignore income taxes.) -------------------------------------------------------------------------------- 7.Prepare the appropriate journal entries at maturity on December 31, 2014.

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