Answer:
1. Journalize Anderson Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at face value. Explanations are not required.
Issuance of bonds:
Dr Cash 90,000
Cr Bonds payable 90,000
First coupon payment:
Dr Interest expense 4,050
Cr Cash 4,050
2. Journalize Anderson Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 92.
Issuance of bonds:
Dr Cash 82,800
Dr Discount on bonds payable 7,200
Cr Bonds payable 90,000
First coupon payment:
Dr Interest expense 4,410
Cr Cash 4,050
Cr Discount on bonds payable (= $7,200 / 20) 360
3. Journalize Anderson Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 103.
Issuance of bonds:
Dr Cash 92,700
Cr Bonds payable 90,000
Cr Premium on bonds payable 2,700
First coupon payment:
Dr Interest expense 3,915
Dr Premium on bonds payable (=$2,700 / 20) 135
Cr Cash 4,050
4. Which bond price results in the most interest expense for Anderson Company?
If the company sells its bonds at a price lower than face value (at a discount) it will receive less money for the bonds they owe. The discount that is recorded increases the amount of interest expense because even though the amount of cash paid doesn't change, the real interest is higher.
Explanation:
issued $90,000 in 9% bonds payable, 10 year maturity, semi annual coupon.
