Acc205 Principles of Accounting: P11-34 Draper Consulting is considering raising additional capital

Acc205 Principles of Accounting

P11-34. Describe bonds and journalize transactions for bonds payable using the straight-line method [20-30 min]

This problem continues the Draper Consulting situation from Problem 10-24 of Chapter 10.

Draper Consulting is considering raising additional capital. Draper plans to raise the capital by issuing $400,000 of 8%, seven-year bonds on March 1, 2012. The bonds pay interest semiannually on March 1 and September 1. On March 1, 2012, the market rate of interest required by similar bonds by investors is 10%.

1. Will Draper's bonds issue at par, a premium, or a discount?
2. Calculate and record the cash received on the bond issue date.
3. Journalize the first interest payment on September 1 and amortize the premium or discount using the straight-line interest method.
4. Journalize the entry required, if any, on December 31 related to the bonds.
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