Reference no: EM132161491
Question - Nguyen Corporation issued a $8,000,000, 6 percent bond on August 1,2017. The market interest rate was 7 percent on that date and the bond matures in eight years. Interest on these bonds is payable annually on August 1. The company uses the effective interest method and its fiscal year ends on Nov 30.
1. Compute the issue price of the bond on August 1, 2017
2. Prepare the journal entries on Nov 30, 2017, and on August 1, 2018, to record interest expense.
3. Assume that the company redeems 40 % of the original bond at 103 on Aug 1, 2018, after the payment of interest. Show the accounts and amounts that the company should report on its statement of financial position as at Aug 1, 2018, after the redemption of the bonds.
4. How would the effect of the redemption transaction be reported on the statement of earnings and the statement of cash flows for the year ending Nov 30, 2018? The company uses the indirect method to prepare the operating section of the statement of cash flows.
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