On 1/1/2021, EV Car Corporation issued 16%, $200,000,000 face value bonds for $274,773,262, when the effective rate (yield) for bonds of similar risk and maturity was 10%. The bonds mature on 12/31/2019. Interest is paid semiannually on June 30 and December 31. Assume that EV Car Corporation elected the fair value option. Due to changes in general market rates, the effective rate (yield) was 8% on 6/30/2021. Although the market rate did not change from 6/30/2021 to 12/31/2021, due to changes in EV Car Corporation's credit risk, the effective rate for its bonds was 12% on 12/31/2021. Required: 1. Prepare the journal entries that EV Car Corporation recorded on 6/30/2021. 2. Prepare the journal entries that EV Car Corporation recorded on 12/31/2021. 3. What was the total effect of the bonds on EV Car Corporation's pre-tax income for 2021? Show your work.
On 1/1/2021, EV Car Corporation issued 16%, $200,000,000 face value bonds for $274,773,262, when the effective rate (yield) for bonds of similar risk and maturity was 10%. The bonds mature on 12/31/2019. Interest is paid semiannually on June 30 and December 31. Assume that EV Car Corporation elected the fair value option. Due to changes in general market rates, the effective rate (yield) was 8% on 6/30/2021. Although the market rate did not change from 6/30/2021 to 12/31/2021, due to changes in EV Car Corporation's credit risk, the effective rate for its bonds was 12% on 12/31/2021. Required: 1. Prepare the journal entries that EV Car Corporation recorded on 6/30/2021. 2. Prepare the journal entries that EV Car Corporation recorded on 12/31/2021. 3. What was the total effect of the bonds on EV Car Corporation's pre-tax income for 2021? Show your work.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 5P: Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and...
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