Answered: On January 1, 2011, Davis Corporation… | bartleby

On January 1, 2011, Davis Corporation issued $3,900,000 of 7% bonds at 101. Interest is paid annually on December 31 of each year. The bonds mature on December 31, 2027, and the company uses the straight-line method of amortization. On January 2, 2019, Davis reacquired the bonds and recognized a loss of $88,000. 1. Calculate the reacquisition price of the bonds on January 2, 2019. 2. Prepare the journal entry to record the reacquisition of Davis’s bonds on January 2, 2019. (I started some of it below) DATE ACCOUNT TITLE DEBIT CREDIT 1 Jan 2 Bonds Payable 3,900,000 2 Premium on Bonds Payable 3 Loss on Bond Reacquisition 88,000 4 Cash

Intermediate Accounting: Reporting And Analysis

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 16E

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On January 1, 2011, Davis Corporation issued $3,900,000 of 7% bonds at 101. Interest is paid annually on December 31 of each year. The bonds mature on December 31, 2027, and the company uses the straight-line method of amortization. On January 2, 2019, Davis reacquired the bonds and recognized a loss of $88,000.

1. Calculate the reacquisition price of the bonds on January 2, 2019.

2. Prepare the journal entry to record the reacquisition of Davis’s bonds on January 2, 2019. (I started some of it below)

	DATE	ACCOUNT TITLE		DEBIT	CREDIT
1	Jan 2	Bonds Payable		3,900,000
2		Premium on Bonds Payable
3		Loss on Bond Reacquisition		88,000
4		Cash

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On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?

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