On September 1 2011 Park Rapids Lumber Company

issued 80
On September 1, 2011, Park Rapids Lumber Company issued $80 million in 20-year, 10
percent bonds payable. Interest is payable semiannually on March 1 and September 1. Bond
discounts and premiums are amortized at each interest payment date and at year-end. The
company’s fiscal year ends at December 31.Instructions a. Make the necessary adjusting
entries at December 31, 2011, and the journal entry to record the payment of bond interest on
March 1, 2012, under each of the following assumptions: 1. The bonds were issued at 98.
(Round to the nearest dollar.) 2. The bonds were issued at 101. (Round to the nearest dollar.) b.
Compute the net bond liability at December 31, 2012, under assumptions 1 and 2 above.
(Round to the nearest dollar.) c. Under which of the above assumptions, 1 or 2, would the
investor’s effective rate of interest be higher? Explain.View Solution:
On September 1 2011 Park Rapids Lumber Company issued 80
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