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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Exercise Bond Premium and Discount

Markway Inc. is contemplating selling bonds. The issue is to be composed of 750 bonds, each with a face amount of $1,000.

Required:

  1. Calculate how much Markway is able to borrow if each bond is sold at a premium of $30.
  2. Calculate how much Markway is able to borrow if each bond is sold at a discount of $10.
  3. Calculate how much Markway is able to borrow if each bond is sold at 92% of par.
  4. Calculate how much Markway is able to borrow if each bond is sold at 103% of par.
  5. Assume that the bonds are sold for $975 each. Prepare the entry to recognize the sale of the 750 bunds.
  6. Assume that the bonds arc sold for $1,015 each. Prepare the entry to recognize the sale of the 750 bonds.

To determine

(a)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Debt Markway can borrow if each bond is sold at premium.

Explanation

Given:

750 bonds are to be issued with $1,000 as face value.

The face value of bonds issued is recorded as bonds payable and any premium or discount on issue of bonds is recorded in separate “Premium on Bonds Payable” or “Discount on Bonds Payable” account.

No...

To determine

(b)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Debt Markway can borrow if each bond is sold at a discount.

To determine

(c)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Debt Markway can borrow if each bond is sold at 92% of par.

To determine

(d)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To calculate:

Debt Markway can borrow if each bond is sold at 103% of par value.

To determine

(e)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To record:

Journal entry if bonds are sold at $975 each.

To determine

(f)

Introduction:

A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.

To record:

Journal entry if bonds are sold at $1,015 each.

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