On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a contractual interest rate of “LIBOR plus 5.5%,” which is reset annually on January 1 of each year. The LIBOR rates on January 1, 2017, 2018, and 2019, were 6.5%, 7.0%, and 5.5%, respectively.
Required:
- Prepare a journal entry to record the issuance of the bonds on January 1, 2017, at par. What was the effective (or market) interest rate when the bonds were issued?
- Prepare a journal entry to record interest expense for 2017, 2018, and 2019. Assume that interest is paid annually on December 31.
- What is the market value of the debt at December 31, 2019, assuming Nicks Corporation’s credit risk has not changed.
REQUIREMENT 1&2
1. Prepare a journal entry to record the issuance of the bonds
on January 1, 2017, at par. What was the effective (or market)
interest rate when the bonds were issued?
2. Prepare a journal entry to record interest expense for 2017,
2018, and 2019. Assume that interest is paid annually on December
31.
(If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)
REQUIREMENT 3
1.What is the market value of the debt at December 31, 2019, assuming Nicks Corporation’s credit risk has not changed. ___________ million
Homework Answers
I). The effective market rate of interest on the issuance of band 6.50% whether its floating rate of interest bond
II) Journal Entries
1). JE for the Issuance of Bond.
| Date | Particulars | Amount(millions) | Amount(millions) |
| 01-01-2017 | Debentures holders | $250 | |
| Bond's (Floating interest) | $250 |
Bond purchased by debentures holders
| Date | Particulars | Amount(millions) | Amount(millions) |
| 01-01-2017 | Bank | $250 | |
| Debentures holders | $250 |
payments by debentures holders
2). JE for 2017's interest expenses.
| Date | Particulars | Amount(millions) | Amount(millions) |
| 31-12-2017 | Interest on Bond @6.5% | $16.25 | |
| Debentures holders A/c | $16.25 |
interest expenses booked for bond
| Date | Particulars | Amount(millions) | Amount(millions) |
| 31-12-2017 | Debentures holders | $16.25 | |
| Bank | $16.25 |
payments to debentures holders
3). JE for 2018's interest expenses.
| Date | Particulars | Amount(millions) | Amount(millions) |
| 31-12-2018 | Interest on Bond @7.00% | $17.50 | |
| Debentures holders A/c | $17.50 |
interest expenses booked for bond
| Date | Particulars | Amount(millions) | Amount(millions) |
| 31-12-2018 | Debentures holders | $17.50 | |
| Bank | $17.50 |
payments to debentures holders
3). JE for 2019's interest expenses.
| Date | Particulars | Amount(millions) | Amount(millions) |
| 31-12-2019 | Interest on Bond @5.50% | $13.75 | |
| Debentures holders A/c | $13.75 |
interest expenses booked for bond
| Date | Particulars | Amount(millions) | Amount(millions) |
| 31-12-2019 | Debentures holders | $13.75 | |
| Bank | $13.75 |
payments to debentures holders
Add Answer to:
On January 1, 2017, Nicks Corporation issued $250 million of
floating-rate debt. The debt carries a...
On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a...
On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a contractual interest rate of “LIBOR plus 5.5%,” which is reset annually on January 1 of each year. The LIBOR rates on January 1, 2017, 2018, and 2019, were 6.5%, 7.0%, and 5.5%, respectively. Required: Prepare a journal entry to record the issuance of the bonds on January 1, 2017, at par. What was the effective (or market) interest rate when the bonds were issued?...
On January 1, 2017, Tango-In-The-Night, Inc., issued $75 million of bonds with an 8% coupon interest...
On January 1, 2017, Tango-In-The-Night, Inc., issued $75 million of bonds with an 8% coupon interest rate. The bonds mature in 10 years and pay interest semi-annually on June 30 and on December 31 of each year. The market rate of interest on January 1, 2017, for bonds of this type was 8%. The company closes its books on December 31. Tango-In-The-Night elects the fair value option under ASU 2016-1. Ignore tax effects. Required: At what price were the bonds...
5 % On January 1, 2017, Lock Corporation issued $1,800,000 face value, 1 10 -year bonds...
5 % On January 1, 2017, Lock Corporation issued $1,800,000 face value, 1 10 -year bonds at $1,667,518 This price resulted in an effective-interest rate of 6% on the bonds. Lock uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1. Instructions: (Round all computations to the nearest dollar.) (a) Prepare the journal entry to record the issuance of the bonds on January 1, 2017. 01/01/14 Account title Account title Account title Amount...
Oscar, Inc. issued a $500,000, 5.5%, 10-year bond on January 1, 2016. The market rate of...
Oscar, Inc. issued a $500,000, 5.5%, 10-year bond on January 1, 2016. The market rate of interest at issuance was 6%. The bonds make semi-annual interest payments on July 1st and January 1st. The corporation’s fiscal year ends on December 31. The corporation accounts for the bonds using the effective-interest method a) Calculate the price of the bond at issuance on January 1, 2016 b) Prepare any journal entry the company records on December 31, 2016
Grocery Corporation received $330,361 for 11.00 percent bonds issued on January 1, 2018, at a market...
Grocery Corporation received $330,361 for 11.00 percent bonds issued on January 1, 2018, at a market interest rate of 8.00 percent. The bonds had a total face value of $275,000, stated that interest would be paid each December 31, and stated that they mature in 10 years. Assume Grocery Corporation uses the effective-interest method to amortize the bond premium Required 1. & 2. Prepare the required journal entries to record the bond issuance and the first interest payment on December...
Universal Foods issued 8% bonds, dated January 1, with a face amount of $250 million on...
Universal Foods issued 8% bonds, dated January 1, with a face amount of $250 million on January 1, 2018. The bonds mature on December 31, 2032 (15 years). The market rate of interest for similar issues was 10%. Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line method. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:...
Simko Company issued $720,000, 8-year, 6 percent bonds on January 1, 2018. The bonds were issued...
Simko Company issued $720,000, 8-year, 6 percent bonds on January 1, 2018. The bonds were issued for $640,000. Interest is payable annually on December 31. Using straight-line amortization, prepare journal entries to record (a) the bond issuance on January 1, 2018, and (b) the payment of interest on December 31, 2018. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) Record the issuance of bonds with a face value of $720,000...
Mechanical Autoparts Inc. issued $190,000 of 9%, 10-year bonds at a price of 88 on January...
Mechanical Autoparts Inc. issued $190,000 of 9%, 10-year bonds at a price of 88 on January 31, 2017. The market interest rate at the date of issuance was 11%, and the standard bonds pay interest 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. 2. Record Mechanical's issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. Explanations are...
Problem Two: On January 1, 2017, Ashlock Chemical AG issued €4,000,000, 10%, 10-year bonds at €4,543,627....
Problem Two: On January 1, 2017, Ashlock Chemical AG issued €4,000,000, 10%, 10-year bonds at €4,543,627. This price resulted in an 8% effective-interest rate on the bonds. Ashlock uses the effective-interest method to amortize bond premium or discount. The bonds pay interest semi-annually on January 1 and July 1. Rounding to two decimal places, answer the following: a) Use Present Value of 1 Table and Present Value of an Annuity of 1 Table, and your knowledge of time value of...
On January 1, 2017, Klosterman Company issued $400,000, 8%, 10-year bonds at face value. Interest is...
On January 1, 2017, Klosterman Company issued $400,000, 8%,
10-year bonds at face value. Interest is payable annually on
January 1.
Question 1 On January 1, 2017, Klosterman Company issued $400,000, 8%, 10-year bonds at face value. Interest is payable annually on January 1. Prepare the journal entry to record the issuance of the bonds. (Credit account tities are automatically indented when amount is ent Date Account Titles and Explanation Debit Credit Jan. 1, 2017 SHOW LIST OF ACCOUNTS LINK...
5 % On January 1, 2017, Lock Corporation issued $1,800,000 face value, 1 10 -year bonds at $1,667,518 This price resulted in an effective-interest rate of 6% on the bonds. Lock uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1. Instructions: (Round all computations to the nearest dollar.) (a) Prepare the journal entry to record the issuance of the bonds on January 1, 2017. 01/01/14 Account title Account title Account title Amount...
Grocery Corporation received $330,361 for 11.00 percent bonds issued on January 1, 2018, at a market interest rate of 8.00 percent. The bonds had a total face value of $275,000, stated that interest would be paid each December 31, and stated that they mature in 10 years. Assume Grocery Corporation uses the effective-interest method to amortize the bond premium Required 1. & 2. Prepare the required journal entries to record the bond issuance and the first interest payment on December...
Mechanical Autoparts Inc. issued $190,000 of 9%, 10-year bonds at a price of 88 on January 31, 2017. The market interest rate at the date of issuance was 11%, and the standard bonds pay interest 1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. 2. Record Mechanical's issuance of the bonds on January 31, 2017, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2017. Explanations are...
On January 1, 2017, Klosterman Company issued $400,000, 8%,
10-year bonds at face value. Interest is payable annually on
January 1.
Question 1 On January 1, 2017, Klosterman Company issued $400,000, 8%, 10-year bonds at face value. Interest is payable annually on January 1. Prepare the journal entry to record the issuance of the bonds. (Credit account tities are automatically indented when amount is ent Date Account Titles and Explanation Debit Credit Jan. 1, 2017 SHOW LIST OF ACCOUNTS LINK...
Most questions answered within 3 hours.
-
Katelynn, a physician, earns $200,000 from her medical practice
in the current year. She receives $45,000...
asked 52 seconds from now -
Each row of the table below describes an aqueous solution at
25°C
.
The second column...
asked 3 minutes ago -
A horizontal wire is at y = 0. Current travels in the +x
direction. The magnetic...
asked 3 minutes ago -
Let X be a continuous random variable whose PDF is Let X be a
continuous random...
asked 25 minutes ago -
Martinez Company’s relevant range of production is 7,500 units
to 12,500 units. When it produces and...
asked 23 minutes ago -
A football with a mass of 1.2 kg is kicked from ground level to
a height...
asked 28 minutes ago -
Remember: Changes in supply determinants shift supply, and
changes in demand determinants shift demand. We say...
asked 27 minutes ago -
Why is the answer b), for this question? I came up with C) for
my incorrect...
asked 33 minutes ago -
Suppose that you know that in the population of full-time
employees in the United States, the...
asked 55 minutes ago -
This experiment was designed originally to sample various meat and carcass quality
aspects of Ontario pigs...
asked 55 minutes ago -
Dopamine Hydrochloride: draw the structure And Show the
functional groups in different colors and label the...
asked 48 minutes ago -
A rope supports a 10 kg dumbbell hanging from it. What is the
tension in the...
asked 47 minutes ago