Question

Please help with 14-2 .

Real World Financials 1. What journal entry did HP Inc. use to record the sale in 1997? 2. Using Excel, prepare an amortization schedule for the notes. Assume interest is calculated annually and use numbers expressed in millions of dollars; that is, the face amount is $1,800. 3. What was the effect on HP's carnings in 1998? 4. From the amortization schedule, determine the book value of the debt at the end of 2002. 5. What journal entry did HP Inc. use to record the early extinguishment of debt in 2002, assuming the purchase was made at the end of the year? 6. If none of the notes is repaid prior to maturity, what entry would HP use to record their repayment at the end of 2017? Source: Hewlett-Packard Company The following appeared in the October 15, 2021, issue of the Financial Smarts Journal: Analysis Case 14-2 ssuance of bonds LO14-2 This announcement is not an offer of securities for sale or an offer to buy securities. New Issue October 15, 2021 $750,000,000 CRAFT FOODS, INC. 7.75% Debentures Due October 1, 2031 Price 99.57% plus accrued interest if any from date of issuance Copies of the prospectus and the related prospectus supplement may be obtained from such of the undersigned as may legally offer these securities under applicable securities laws. Keegan Morgan & Co. Inc. Coldwell Bros. & Co. Robert Stacks & Co. Sherwin-William & Co. Required: 1 Based on the information provided in the announcement, indicate whether the market rate of interest is higher or lower than 7.75% when the Craft Foods bonds were issued. 2 If debt issue costs were $75,000 and the bonds were issued on an interest payment date, what entry did Craft use to record the sale? iment 14-3 nterest- ng debt 14-3 While reading a recent issue of Health & Fitness, a trade journal, Brandon Wilde noticed an ad for equipment he had been seeking for use in his business. The ad offered oxygen therapy equipment under the following terms: Model BL 44582 $204,000 zero interest loan uarterly naymante af t17 nnn far anlı, 2 vnare

Answer 1

Question 14-2: Requirement 1: Corporations may issue bonds at discount or premium based on the market condtions. Generally, When market rate of interest is higher than bond interest rate, then investors would not like to invest in that bond. To make that up corporations issue bond at discount. As per the information given, bond is issued at a price of 99.57% i.e., $750,000 x 99.57% = $746,775 It means that bond is issued at discount. Bond is issued at discount means that the stated interest rate (7.75%) is less than the market rate of interest Therefore, Market rate of interest is higher than 7.75%

Requirement 2: Assume that debt issue costs were paid using proceeds from bond issue. Proceeds from bond issue = 750,000 x 99.57% = $746,775 Date Credit Entry to record the issuance of bond is Accounts title Debit Cash ( 746,775 - 75,000 ] $ 671,775 Discount on bond payable [ 750,000 -746,775 $ 3,225 Bond issue costs $ 75,000 Bonds payable (To record the issue of bond at discount] $ 750,000