Financial Accounting (12th Edition) (What's New in Accounting)
12th Edition
ISBN: 9780134725987
Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
Publisher: PEARSON
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Chapter 9, Problem 9.10S
To determine
The gain or loss on the retirement of bonds and its reporting on the financial statements of Corporation J.
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Atlantic Corp needs to issue Bonds to raise money with standard par value. Corporation is going to pay 5% of Interest on these bonds and in 40% Tax Bracket.
a) If company needs to raise money equal to 2019331015 $, how many bonds company needs to issue.
b) How much is company's interest saving.
(Learning Objective 1: Measure cash amounts for a bond payable (premium);amortize bond premium using the straight-line method) Town Bank has $100,000 of 4%debenture bonds outstanding. The bonds were issued at 106 in 2018 and mature in 2038. Thebonds have annual interest payments.Requirements1. How much cash did Town Bank receive when it issued these bonds?2. How much cash in total will Town Bank pay the bondholders through the maturity date ofthe bonds?3. Calculate the difference between your answers to requirements 1 and 2. This differencerepresents Town Bank’s total interest expense over the life of the bonds.4. Compute Town Bank’s annual interest expense using the straight-line amortization method.Multiply this amount by 20. Your 20-year total should be the same as your answer torequirement 3.
(Learning Objectives 2, 3, 6: Issue convertible bonds at a discount, amortize usingthe effective-interest method, and convert bonds; report bonds payable on the balancesheet) On December 31, 2018, Mainland Corporation issues 6%, 10-year convertible bondspayable with a face value of $4,000,000. The semiannual interest dates are June 30 andDecember 31. The market interest rate is 8%. Mainland amortizes bond discounts using theeffective-interest method.Requirements1. Use the PV function in Excel to calculate the issue price of the bonds.2. Prepare an effective-interest method amortization table for the term of the bonds usingExcel.3. Journalize the following transactions:a. Issuance of the bonds on December 31, 2018. Credit Convertible Bonds Payable.b. Payment of interest and amortization of the bond discount on June 30, 2019.c. Payment of interest and amortization of the bond discount on December 31, 2019.d. Conversion by the bondholders on July 1, 2020, of bonds with a total face value…
Chapter 9 Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
Ch. 9 - Brownlee Company issued 525,000, 8%, six-year...Ch. 9 - A bond with a face value of 250,000 and a quoted...Ch. 9 - Mission Furniture issued 500,000 in bonds payable...Ch. 9 - Bonds with an 8% stated interest rate were issued...Ch. 9 - Brimfest Corporation issued 2,400,000, 10-year, 6%...Ch. 9 - The Discount on Bonds Payable account a.is an...Ch. 9 - The discount on a bond payable becomes...Ch. 9 - The carrying value of Bonds Payable equals a.Bonds...Ch. 9 - Prob. 9QCCh. 9 - Prob. 10QC
Ch. 9 - Prob. 11QCCh. 9 - When a company retires bonds early, the gain or...Ch. 9 - Which type of lease will not increase a companys...Ch. 9 - Prob. 14QCCh. 9 - The debt ratio is calculated by dividing: a. total...Ch. 9 - Prob. 16QCCh. 9 - Prob. 17QCCh. 9 - Prob. 9.1ECCh. 9 - Prob. 9.1SCh. 9 - (Learning Objective 1: Determine bond prices at...Ch. 9 - (Learning Objective 1: Journalize basic bond...Ch. 9 - Prob. 9.4SCh. 9 - Prob. 9.5SCh. 9 - Prob. 9.6SCh. 9 - Prob. 9.7SCh. 9 - Prob. 9.8SCh. 9 - (Learning Objective 2: Account for bonds payable...Ch. 9 - Prob. 9.10SCh. 9 - LO 4,5 (Learning Objectives 4, 5: Deferred income...Ch. 9 - LO 5 (Learning Objective 5: Compute and evaluate...Ch. 9 - LO 5 (Learning Objective 5: Calculate the leverage...Ch. 9 - LO 6 (Learning Objective 6: Report liabilities)...Ch. 9 - (Learning Objective 1: Issue bonds payable...Ch. 9 - Prob. 9.16AECh. 9 - Prob. 9.17AECh. 9 - LO 2 (Learning Objective 2: Issue bonds payable...Ch. 9 - Prob. 9.19AECh. 9 - LO 4 (Learning Objective 4: Account for deferred...Ch. 9 - (Learning Objective 5: Evaluate debt-paying...Ch. 9 - LO 4, 5 (Learning Objectives 4, 5: Analyze current...Ch. 9 - Prob. 9.23AECh. 9 - (Learning Objective 1: Issue bonds payable...Ch. 9 - Prob. 9.25BECh. 9 - Prob. 9.26BECh. 9 - Prob. 9.27BECh. 9 - Prob. 9.28BECh. 9 - LO 4 (Learning Objective 4: Account for deferred...Ch. 9 - Prob. 9.30BECh. 9 - Prob. 9.31BECh. 9 - Prob. 9.32BECh. 9 - A bond with a face amount of 12,000 has a current...Ch. 9 - The carrying value on bonds equals Bends Payable...Ch. 9 - Prob. 9.35QCh. 9 - Prob. 9.36QCh. 9 - Prob. 9.37QCh. 9 - Prob. 9.38QCh. 9 - Prob. 9.39QCh. 9 - Prob. 9.40QCh. 9 - Prob. 9.41QCh. 9 - Prob. 9.42QCh. 9 - Prob. 9.43QCh. 9 - Prob. 9.44QCh. 9 - Prob. 9.45QCh. 9 - Prob. 9.46QCh. 9 - Prob. 9.47QCh. 9 - Prob. 9.48QCh. 9 - Prob. 9.49QCh. 9 - Prob. 9.50APCh. 9 - (Learning Objectives 1, 6: Issue bonds at a...Ch. 9 - Prob. 9.52APCh. 9 - Prob. 9.53APCh. 9 - (Learning Objectives 2, 3, 6: Issue convertible...Ch. 9 - Prob. 9.55APCh. 9 - Prob. 9.56BPCh. 9 - Prob. 9.57BPCh. 9 - Prob. 9.58BPCh. 9 - Prob. 9.59BPCh. 9 - (Learning Objectives 2, 3, 6: Issue convertible...Ch. 9 - (Learning Objectives 4, 5, 6: Report liabilities...Ch. 9 - Prob. 9.62CEPCh. 9 - Prob. 9.63CEPCh. 9 - Prob. 9.64SCCh. 9 - (Learning Objective 5: Explore an actual...Ch. 9 - Prob. 1FF
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Similar questions
- A corporate bond is under sale now. If you buy the bond, you will receive $1 million (including principal and interest) after 1 year. Three investors are competing to buy the bond. They have different required rates of return as shown below. Who would win the competition and buy the bond? Mr. A: 2% Mr. B: 3% Mr. C: 4%arrow_forwardCan you pleas provide clear answers for B, convexity and duration.Thank you for your time. Question 3. Bond Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset5yr bond bought at a yield of 3.4% (lending money) $550M 4.56212.02612yr bond bought at a yield of 4% (lending money) $800M 9.45353.565 Liabilities Value Duration of the Liability Convexity of the Liability2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.3844yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 a) Calculate the equity (total asset – total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides;arrow_forward(Learning Objectives 1, 3: Account for bonds payable retired prior to maturity) OnJanuary 1, 2017, Ditchey Corporation issued five-year, 6% bonds payable with a face valueof $3,500,000. The bonds were issued at 96 and pay interest on January 1 and July 1. Ditcheyamortizes bond discounts using the straight-line method. On December 31, 2019, Ditcheyretired the bonds early by purchasing them at a market price of 99. The company’s fiscal yearends on December 31.Requirements1. Journalize the issuance of the bonds on January 1, 2017.2. Record the semiannual interest payment and amortization of bond discount on July 1,2017.3. Record the interest accrual and discount amortization on December 31, 2017.4. Calculate the carrying value of the bonds payable on December 31, 2019, prior to theirretirement.5. Calculate the gain or loss on the retirement of the bonds payable on December 31, 2019.Indicate where this gain or loss will appear in the financial statements.arrow_forward
- (Learning Objectives 1, 3: Account for bonds payable retired prior to maturity)On January 1, 2017, Kittle Corporation issued five-year, 4% bonds payable with a face valueof $2,500,000. The bonds were issued at 95 and pay interest on January 1 and July 1. Kittleamortizes bond discounts using the straight-line method. On December 31, 2019, Kittle retiredthe bonds early by purchasing them at a market price of 97. The company’s fiscal year ends onDecember 31.Requirements1. Journalize the issuance of the bonds on January 1, 2017.2. Record the semiannual interest payment and amortization of bond discount on July 1,2017.3. Record the interest accrual and discount amortization on December 31, 2017.4. Calculate the carrying value of the bonds payable on December 31, 2019, prior to theirretirement.5. Calculate the gain or loss on the retirement of the bonds payable on December 31, 2019.Indicate where this gain or loss will appear in the financial statements.arrow_forwardVirtual Excursions, Pty is financed 80% by common stock and 20% by bonds. The expected return on the common stock is 12%, and the rate of interest on the bond is 6%. The bonds are default-free and that there are no taxes. Assume that the company issues more debt and uses the proceeds to retire equity. The new financing mix is 60% equity and 40% debt. If the debt is default-free. a) What will be the expected rate of return on equity? b) What will be the expected return on the package of common stocks and bonds?arrow_forwardYour firm successfully issued new debt last year, but the debt carries covenants. Specifically, you can only pay dividends out of earnings made after the debt issue and you must maintain a minimum quick (acid-test) ratio (Current Assets−Inventory)/Current Liabilities of 1.2. Your net income this year was $69.7 million. Your cash is $10.3 million, your receivables are $8.4 million, and your inventory is $5.2 million. You have current liabilities of $18.6 million. What is the maximum dividend you could pay (in cash and in stock) this year and still comply with your covenants?arrow_forward
- Learning Objectives 2, 3, 6: Issue convertible bonds at a discount; amortize usingthe effective interest method; convert bonds; report bonds payable on the balance sheet) OnDecember 31, 2018, Herndon Corporation issues 6%, 10-year convertible bonds payable witha face value of $1,000,000. The semiannual interest dates are June 30 and December 31. Themarket interest rate is 7%. Herndon amortizes bond discounts using the effective-interestmethod.Requirements1. Use the PV function in Excel to calculate the issue price of the bonds.2. Prepare an effective-interest method amortization table for the term of the bonds usingExcel.3. Journalize the following transactions:a. Issuance of the bonds on December 31, 2018. Credit Convertible Bonds Payable.b. Payment of interest and amortization of the bond discount on June 30, 2019.c. Payment of interest and amortization of the bond discount on December 31, 2019.d. Conversion by the bondholders on July 1, 2020, of bonds with a total face value…arrow_forwardDollar General (DG) is choosing between financing itself with only equity or with debt and equity. Regardless of how it finances itself, the EBIT for DG will be $545.63 million. If DG does use debt, the interest expense will be $57.85 million. If DG‘s corporate tax rate is 0.30, how much will DG pay (in millions) in total to ALL investors if it uses both debt and equity? Instruction: Type ONLY your numerical answer in the unit of millionsarrow_forwardSHOW YOUR SOLUTION IN EXCEL FORM. THANK YOU On June 30, 2002, LOAD Company had outstanding 8%, P1,000,000 face amount, 15-year bonds maturing on June 30 , 2009. Interest is payable on June 30 and December 31. The unamortized balance on June 30, 2002, in the bond discount and bond issue costs accounts were P35,000 and P10,000 respectively. LOAD acquired all of these bonds at 94 on June 30, 2002, and retired them. Ignoring income taxes, how much gain should LOAD report on this early extinguishment of debt? P15,000 P25,000 P35,000 P60,000arrow_forward
- (Learning Objectives 1, 6: Issue bonds at a discount; amortize using thestraight-line method; report bonds payable and accrued interest payable on the balancesheet) On February 28, 2018, Shark Corp. issued 10%, 10-year bonds payable with a facevalue of $1,500,000. The bonds pay interest on February 28 and August 31. The companyamortizes bond discount using the straight-line method.Requirements1. If the market interest rate is 9% when Shark Corp. issues its bonds, will the bonds bepriced at par, at a premium, or at a discount? Explain.2. If the market interest rate is 11% when Shark Corp. issues its bonds, will the bonds bepriced at par, at a premium, or at a discount? Explain.3. Assume that the issue price of the bonds is 94. Journalize the following bond transactions.a. Issuance of the bonds on February 28, 2018b. Payment of interest and amortization of the bond discount on August 31, 2018c. Accrual of interest and amortization of the bond discount on December 31, 2018…arrow_forwardQuestion 7 Gioanni Inc., has GH¢1 million in earnings before interest and taxes. Currently it is all-equity-financed. It may issue GH¢3 million in perpetual debt at 15 percent interest in order to repurchase stock, thereby recapitalizing the corporation. There are no personal taxes. If the corporate tax rate is 40 percent, what is the income available to all security holders if the company remains all-equity-financed? If it is recapitalized? What is the present value of the debt tax-shield benefits? The equity capitalization rate for the company’s common stock is 20 percent while it remains all-equity-financed. What is the value of the firm if it remains all-equity financed? What is the firm’s value if it is recapitalized?arrow_forward
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