Bond prices depend on the market rate of interest, stated rate of interest, and time. Determine whether the following bonds payable will be issued at face value, at a premium, or at a discount: a. The market interest rate is 8%. Idaho issues bonds payable with a stated rate of 7.75%. D. Austin issued 9% bonds payable when the market interest rate was 8.25%. C. Cleveland's Cars issued 10% bonds when the market interest rate was 10%. d. Atlanta's Tourism issued bonds payable that pay t issuance, the market interest rate was 10.25%. the stated interest rate of 8.5%. At

Bond prices depend on the market rate of interest, stated rate of interest, and time. Determine whether the following bonds payable will be issued at face value, at a premium, or at a discount: a. The market interest rate is 8%. Idaho issues bonds payable with a stated rate of 7.75%. D. Austin issued 9% bonds payable when the market interest rate was 8.25%. C. Cleveland's Cars issued 10% bonds when the market interest rate was 10%. d. Atlanta's Tourism issued bonds payable that pay t issuance, the market interest rate was 10.25%. the stated interest rate of 8.5%. At

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter12: Long-Term Liabilities: Bonds And Notes

Section: Chapter Questions

Problem 12.2APR

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On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization
Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
On July 1, Somerset Inc. issued $200,000 of 10%, 10-year bonds when the market rate was 12%. The bonds paid interest semi-annually. Assuming the bonds sold at 58.55, what was the selling price of the bonds? Explain why the cash received from selling this bond is different from the $200,000 face value of the bond.