b. Determine the amount of the bond interest expense for the first year. Round your answer to the nearest dollar. c. Why was the company able to issue the bonds for only $14,118,450 rather than for the face amount of $14,700,000? The market rate of interest is greater than the contract rate of interest.
b. Determine the amount of the bond interest expense for the first year. Round your answer to the nearest dollar. c. Why was the company able to issue the bonds for only $14,118,450 rather than for the face amount of $14,700,000? The market rate of interest is greater than the contract rate of interest.
Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter14: Long-term Liabilities: Bonds And Notes
Section: Chapter Questions
Problem 6PA: Saverin, Inc. produces and sells outdoor equipment. On July 1, 2016, Saverin, Inc. issued 62,500,000...
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Concept explainers
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
Transcribed Image Text:On the first day of its fiscal year, Jacinto Company issued $14,700,000 of five-year, 8% bonds to finance its operations of producing and selling
home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in
Jacinto Company receiving cash of $14,118,450.
a. Journalize the entries to record the following:
1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment.
3. Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment.
If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.
Cash
1.
14,118,450
Discount on Bonds Payable
581,550
Bonds Payable
14,700,000
2.
Interest Expense
529,845
Discount on Bonds Payable v
581,155
Cash V
588,000
Interest Expense
3.
529,845
Discount on Bonds Payable
58,155
Cash
588,000
Transcribed Image Text:b. Determine the amount of the bond interest expense for the first year. Round your answer to the nearest dollar.
c. Why was the company able to issue the bonds for only $14,118,450 rather than for the face amount of $14,700,000?
The market rate of interest is greater than v
the contract rate of interest.
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