Answered: Show the double entry for each year to…

Business

Accounting

Show the double entry for each year to maturity of the bond. (Ignore loss allowances)

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EA: Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the...

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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?
Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual coupon (payable June 30 and December 31) on January 1, 2018, when the market rate of interest was 10%. Were the bonds issued at a discount or premium? Assuming the bonds sold at 92.288, what was the sales price of the bonds?
Issue Price The following terms relate to independent bond issues: 500 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments 500 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments 800 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments 2,000 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments Required Assuming the market rate of interest is 10%, calculate the selling price for each bond issue.
Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?
1) X Ltd issued a loan on 1st January 2015 and classified it as measured at amortised cost. Terms Norminal : GHS 50million Coupon rate : 10% Terms to maturity: 3 years Purchase price: FHS 48million Effective rate : 11.67% Required: Show the double entry for each year to maturity (ignore loss allowance) 2) A company issues GHS 10million of 6% bonds are a price of 100.50 for each GHS 100 norminal value with the issue cost of 50,000. The bonds are redeemable after four years for 10,444,000. The effective annual interest for this financial instrument is 7% Required Calculate the amortised cost of the bond and show the interest for each year to maturity
On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future. (i) Prepare an amortization schedule that covers the duration of the bond till 30 June 2018, using the effective interest rate method. Show all the necessary workings and round off your answers to the nearest dollar. (ii) Prepare the necessary journal entries to record the cash interest payment on 31 December 2017. (iii) “ME’s cash payment for interest decreases over the duration of the bond”. Comment on this statement. (iv)…
On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future. (v) Because of a substantial increase in the market rate of interest, ME purchased all the bonds on the open market at par on 30 June 2018. Prepare the journal entry to record the retirement of the bonds on 30 June 2018. Ignore the journal entry for the interest payment on 30 June 2018.
On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future. (iv) Assume ME’s Times Interest Earned (TIE) ratio for the financial year ended 31 December 2017 is 5. What will its TIE ratio likely be for the next three years? Explain.
On April 1, 2015, Alpha Ltd. raised Rs. 100 million through zero-coupon bond with a maturity period of 3 years. The maturity value of the bond is Rs. 140.50 million and no interest is paid during the three-year period. The effective interest rate is 12% per year compounded annually. How this liability is shown in the Balance sheet at the end of first year (31st March, 2016)? Rs. 100 million as non-current liabilities (zero coupon bond) and Rs. 12 million as current liabilities (Interest Payable) Rs. 100 million as non-current liabilities (zero coupon bond) and Rs. 12 million as non-current liabilities (Interest Payable) Rs. 140.5 million as non-current liabilities (zero coupon bond) Rs. 100 million as non-current liabilities (zero coupon bond) and Rs. 13.50 million as non-current liabilities (Interest Payable)
On January 1, 2016, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000. The Cortland bonds have a stated interest rate of 6%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: January 1, 2016 7.0% June 30, 2016 8.0% December 31, 2016 9.0% Required: 1. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2016 (ignoring brokerage fees), and prepare a journal entry to record the purchase. 2. Prepare all appropriate journal entries related to the bond investment during 2016, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds. 3. Prepare all appropriate journal entries related to the bond investment during 2016, assuming that Ithaca chose the fair value option when the bonds were…
Gerald issued 9% K35 million convertible loan note on 1 April 2015 at par. Interest is payable in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2018 or convertible into equity shares at the option of the loan note holders on the basis of 30 shares for each K100 of loan. A similar instrument without the conversion option would have interest rate of 10% per annum. The present value of K1 receivable at the end of each year based on discount rates of 10% are; end of year 10% 1 0.91 2 0.83 3 0.75 cumulative 2.49 Explain the accounting treatment of the above instrument
On April 1, 2015, Alpha Ltd. raised Rs. 100 million through zero-coupon bond with a maturity period of 3 years. The maturity value of the bond is Rs. 140.50 million and no interest is paid during the three-year period. The effective interest rate is 12% per year compounded annually. How this liability is shown in the Balance sheet at the end of first year (31st March, 2016)?