17) Cynthia Dixie Accounting Inc. takes advantage of a well-known office furnishings store's low-interest-rate financing. Cynthia buys furniture on the first day of its fiscal year, signing a $19,000, five-year note. The note is payable in full at maturity. Interest is payable annually at 2%. The market rate of interest for similar transactions is 5%.
Requirement:
Prepare journal entries to record:
a. The purchase of the office furniture.
b. The payment of interest and related amortization of the discount at the end of year 1.
18) Stay Fit for Life Inc. issues three series of $10,000,000 ten-year bonds dated January 1,2011 on the issue date. Interest is payable on June 30 and December 31 each year. Series A has a coupon rate of 7%; series B is 8%; and series C is 11 %. The market rate of interest at time of issue is 8%.
Requirement:
a. Prior to making any numerical calculations, comment on whether:
i.Series A will sell at a discount, par, or premium and briefly explain why.
ii.Series B will sell at a discount, par, or premium and briefly explain why.
iii.Series C will sell at a discount, par, or premium and briefly explain why.
b. Prepare journal entries to record the issuance of:
i.The series A bonds.
ii.The series B bonds.
iii.The series C bonds.