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29.   Accounting for long-term bonds. The notes to the financial statements of Aggarwal Corpo- ration for 2013 reveal the following information with respect to long-term debt. All interest rates in this problem assume semiannual compounding and the effective interest method of amortization using amortized cost measurement based on the historical market interest rate.
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December 31
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2013 |
2012 |
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$800,000 zero coupon notes due December 31, 2022, initially priced to yield 10% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
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 $  301,512 |
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$1,000,000 7% bonds due December 31, 2017. |
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Interest is payable on June 30 and December 31. |
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The bonds’ initial price implies a yield of 8%. . . . . . . . . . . . . . . . . . . . . . . |
$966,336 |
? |
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$1,000,000, 9% bonds due December 31, 2028. |
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Interest is payable on June 30 and December 31. |
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The bonds’ initial price implies a yield of 6%. . . . . . . . . . . . . . . . . . . . . . . |
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$1,305,832 |
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a.   Compute the carrying value of the zero coupon notes on December 31, 2013. A zero coupon note requires no periodic cash payments; only the face value is payable at matu- rity. Do not overlook the italicized sentence above.
b.   Compute the amount of interest expense for 2013 on the 7% bonds.
c.    On July 1, 2013, Aggarwal Corporation acquires half of the 9% bonds ($500,000 face value) in the market for $526,720 and retires them. Give the journal entry to record this retirement.
d.   Compute the amount of interest expense on the 9% bonds for the second half of 2013.
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