During 2014 and 2015, Cook Co. completed the following transactions relating to

Question

During 2014 and 2015, Cook Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31.

Issued $360,000 of ten-year, 7 percent bonds for $354,000. The semiannual cash payment for interest is due on March 1 and September 1, beginning September 2014.

Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.

Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.

Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.

Recognized accrued interest expense including the amortization of the discount.

1a.) When the bonds were issued, was the market rate of interest more or less than the stated rate of interest?

1b.) If the bonds had sold at face value, what amount of cash would Cook Co. have received?

During 2014 and 2015, Cook Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31.

Explanation / Answer

Journal Date Particulars Dr. Amount Cr.Amount 01-03-2014 Bank A/c 354000 Discount A/c 6000 To 7% Bonds 360000 01-09-2014 Interest A/c 1260 To Interest payable A/c 1260 01-09-2014 Interest payable A/c 1260 To Bank A/c 1260 01-03-2015 Interest A/c 1260 To Interest payable A/c 1260 01-03-2015 Interest payable A/c 1260 To Bank A/c 1260 01-09-2015 Interest A/c 1260 To Interest payable A/c 1260 01-09-2015 Interest payable A/c 1260 To Bank A/c 1260 The bonds were issued, the market rate of interest was less than the stated rate of interest. Amount of cash would Cook Co. have received is $ 360000

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