Brand Company issued $1,000,000 face value, eight-year, 12% bonds on April 1, 2008, when the
market rate of interest was 12%. Interest payments are due every October 1 and April 1. Brand uses
a calendar year-end.
1. Prepare the journal entry to record the issuance of the bonds on April 1, 2008.
2. Prepare the journal entry to record the interest payment on October 1, 2008.
3. Explain why additional interest must be recorded on December 31, 2008. What impact does
this have on the amounts paid on April 1, 2009?
4. Determine the total cash inflows and outflows that occurred on the bonds over the eight-year life.