Safe Toy Company is seeking to issue USD 800,000 face value of 10 percent, 20-year bonds. The bonds are dated 2009 June 30, call for semiannual interest payments, and mature on 2029 June 30.
a. Compute the price investors should offer if they seek a yield of 8 percent on these bonds. Also, compute the first six months” interest assuming the bonds are issued at that price. Use the interest method and calculate all amounts to the nearest dollar.
b. Repeat part (a) assuming investors seek a yield of 12 percent. Alternate problem C On 2009 July 1, Tick-Tock Clock Company issued USD 100,000 face value of 8 percent, 10-year bonds. These bonds call for semiannual interest payments and mature on 2019 July 1. The company received cash of USD 87,538, a price that yields 10 percent. Assume that the company”s fiscal year ends on March 31. Prepare journal entries to record the bond interest expense on 2010 January 1, and the adjustment needed on 2010 March 31, using the interest method. Calculate all amounts to the nearest dollar.