On March 1, 2011, Silicon Company sold its 5-year, $1,000 face value

Case 1

On March 1, 2011, Silicon Company sold  its 5-year, $1,000 face value, 9% bonds dated March 1, 2011 at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first interest payment date is September 1, 2011. Silicon  uses the effective-interest method of amortization. Bond issue costs were incurred in preparing and selling the bond issue. The bonds can be called by Silicon  at 101 at any time on or after March 1, 2012

Answer the following questions:

(a) (1) How would the selling price of the bond be determined?

(2) Specify how all items related to the bonds would be presented in a balance sheet prepared Immediately after the bond issue was sold.

(b) What items related to the bond issue would be included in Silicon ’s 2011 income statement, and
how would each be determined?

(c) Would the amount of bond discount amortization using the effective-interest method of amortization be lower in the second or third year of the life of the bond issue? Why?

(d) Assuming that the bonds were called in and retired on March 1, 2012, how should Silicon report
the retirement of the bonds on the 2012 income statement?