9th Edition

ISBN: 9781260704341

Author: SPICELAND

Publisher: MCG

Concept explainers

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 th…

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:

Videos

Textbook Question

Chapter 14, Problem 14.31E

Reporting bonds at fair value; calculate fair value

• LO14–6

On January 1, 2018, Essence Communications issued $800,000 of its 10-year, 8% bonds for $700,302. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Essence Communications records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2018, the market interest rate for bonds of similar risk and maturity was 9%. The bonds are not traded on an active exchange. The increase in the market interest rate was due to a 1% increase in general (risk-free) interest rates.

Required:

1. Using the information provided, estimate the fair value of the bonds at December 31, 2018.

2. Prepare the journal entry to record interest on June 30, 2018 (the first interest payment).

3. Prepare the journal entry to record interest on December 31, 2018 (the second interest payment).

4. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 14, Problem 14.30E

Chapter 14, Problem 14.32E

Students have asked these similar questions

Exercise 10.9 (Algo) Accounting for Bonds Issued at a Premium: Issuance, Interest Payments, and Retirement (LO10-5, LO10-6) Xonic Corporation issued $8.5 million of 20-year, 8 percent bonds on April 1, 2021, at 102. Interest is paid on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2041 Xonic's fiscal year ends on December 31. Prepare the following journal entries. a. April 1, 2021, to record the issuance of the bonds. b. September 30, 2021, to pay interest and to amortize the bond premium. c. March 31, 2041, to pay interest, amortize the bond premium, and retire the bonds at maturity (make two separate entries). Assume an adjusting entry was made on December 31, 2040, to recognize interest from October 1 to December 31. d. What is the effect of amortizing the bond premium on (1) annual net income and (2) annual net cash flow from operating activities. (ignore possible income tax effects.) (If no entry is required for a transaction/event,…

24.1 On July 1, 2022, NC called for redemption of all of its P2,000,000 faces amounts bonds payable outstanding at the call price of 102. As of June 30, 2022, the unamortized discount was P90,000, and the unamortized bond issue costs were P45,800. The market value of the bonds was P2,020,300 on July 1, 2022. NC’s effective income tax rate was 30% for 2022. In its income statement for the year ended December 31, 2022, what amount should NC report as loss from bond redemption?

Legacy issues $660,000 of 5.5%, four-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $648,412 when the market rate is 6%. Problem 14-4A Part 2 2. Determine the total bond interest expense to be recognized over the bonds' life. Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repaid 0 Less amount borrowed Total bond interest expense $0

Chapter 14 Solutions

COMBO LSC (ELON) ACC 331/332/333 (LL)

Ch. 14 - How is periodic interest determined for...Ch. 14 - As a general rule, how should long-term...Ch. 14 - How are bonds and notes the same? How do they...Ch. 14 - What information is contained in a bond indenture?...Ch. 14 - On January 1, 2018, Brandon Electronics issued 85...Ch. 14 - How is the price determined for a bond (or bond...Ch. 14 - A zero-coupon bond pays no interest. Explain.Ch. 14 - Prob. 14.8Q Ch. 14 - Compare the two commonly used methods of...Ch. 14 - Prob. 14.10Q

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Solution Summary: The author calculates the fair value of bonds as on 1st December 2018. They are a debt instrument used for the purpose of raising funds of corporations or governmental agencies.

Concept explainers

Videos

Want to see the full answer?

Chapter 14 Solutions