The following three companies issued the following bonds: 1. Lot, Inc.

The following three companies issued the following bonds:

1. Lot, Inc. issued $100,000 of 8 percent, five-year bonds at 102¼ on January 1, 2018. Interest is payable annually on December 31.

2. Max, Inc. issued $100,000 of 8 percent, five-year bonds at 98 on January 1, 2018. Interest is

Payable annually on December 31.

3. Par, Inc. issued $100,000 of 8 percent, five-year bonds at 104 on January 1, 2018. Interest is

Payable annually on December 31.

Required

a. Organize the class into three sections and divide each section into groups of three to five students.

Assign each of the sections one of the companies.

(1) Compute the following amounts for your company (use straight-line amortization):

(a) Cash proceeds from the bond issue.

(b) Interest paid in 2018.

(c) Interest expense for 2018.

(2) Prepare the liabilities section of the as of December 31, 2018.

Class Discussion

b. Is the amount of interest expense different for the three companies? Why or why not?

c. Is the amount of interest paid different for each of the companies? Why or why not?

d. Is the amount of total liabilities different for each of the companies? Why or why not?

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