The notes to the financial statements for Rollins Corporation reveal the following information related to long-term debt. The company uses the effective interest method of amortization and interest is compounded semiannually.
Note 6: Long-term Debt
Long-term debt comprises the following: 12/31/15 12/31/14 $500,000 zero-coupon bonds due December 31, 2015, initially priced to yield 6%. ? ?
$1,000,000, 4.5% bonds due December 31, 2021. Interest is payable June 30 and December 31. Bonds Were initially priced to yield 4%. ? ?
$1,000,000, 7.0% bonds due December 31, 2029. Interest is payable June 30 and December 31. Bonds Were initially priced to yield 7.5%. ? ?
Required: 1. Compute the book value of the bonds at December 31, 2014 and 2015. Assume semiannual compounding for 6% bond. (Hint: compute the prices of the bonds as if they were issued on December 31, 2014 and roll the prices forward one year using an amortization schedule.) 2. Determine the interest expense on the three bonds issues for 2015. 3. On July 1, 2017 Rollins Corporation repurchased $500,000 of the 7% bonds on the open market. The yield on the bonds at that time was 2%. Prepare the journal entry to record the retirement.