Number of bonds issued 500 Par value per bond $1,800 Stated interest rate 4% Market/Effective interest...
| Number of bonds issued | 500 |
| Par value per bond | $1,800 |
| Stated interest rate | 4% |
| Market/Effective interest rate | 6% |
| Issue date | 1/1/X2 |
| Due date (five year bonds) | 12/31/X6 |
| Interest is paid semi annually on: | January 1st |
| AND on | July 1st |
| Bonds are called on | 1/1/X6 |
| Bonds are called at | 102% |
a. At the date of call the journal entry required to extinguish the debt early has what impact on net income? Input the numeric amount. If it increase net income just input the amount. If it decreases net income use a minus sign such as -100.
b. At the date of call the unamortized bond discount or premium is what?
Homework Answers
| a) | Issue price of the bonds = 500*1800/1.03^10+500*1800*2%*(1.03^10-1)/(0.03*1.03^10) = | $ 8,23,228 | |||||
| Amortisation table: | |||||||
| Date | Interest Expense | Interest Payment | Amortization of Discount | Carrying Value | Balance of Discount | ||
| 01-01-2012 | $ 8,23,228 | $ 76,772 | |||||
| 07-01-2012 | $ 24,697 | $ 18,000 | $ 6,697 | $ 8,29,925 | $ 70,075 | ||
| 01-01-2013 | $ 24,898 | $ 18,000 | $ 6,898 | $ 8,36,823 | $ 63,177 | ||
| 07-01-2013 | $ 25,105 | $ 18,000 | $ 7,105 | $ 8,43,927 | $ 56,073 | ||
| 01-01-2014 | $ 25,318 | $ 18,000 | $ 7,318 | $ 8,51,245 | $ 48,755 | ||
| 07-01-2014 | $ 25,537 | $ 18,000 | $ 7,537 | $ 8,58,782 | $ 41,218 | ||
| 01-01-2015 | $ 25,763 | $ 18,000 | $ 7,763 | $ 8,66,546 | $ 33,454 | ||
| 07-01-2015 | $ 25,996 | $ 18,000 | $ 7,996 | $ 8,74,542 | $ 25,458 | ||
| 01-01-2016 | $ 26,236 | $ 18,000 | $ 8,236 | $ 8,82,779 | $ 17,221 | ||
| 07-01-2016 | $ 26,483 | $ 18,000 | $ 8,483 | $ 8,91,262 | $ 8,738 | ||
| 07-01-2017 | $ 26,738 | $ 18,000 | $ 8,738 | $ 9,00,000 | $ 0 | ||
| JOURNAL ENTRY: | Debit | Credit | |||||
| Bonds payable | $ 9,00,000 | ||||||
| Loss on extinguishment of bonds | $ 35,221 | ||||||
| Discount on bonds payable | $ 17,221 | ||||||
| Cash (500*1800*102%) | $ 9,18,000 | ||||||
| Impact of net income = | $ -35,221 | ||||||
| b) | Unamortized bond discount = | $ 17,221 | |||||
Add Answer to:
Number of bonds issued
500
Par value per bond
$1,800
Stated interest rate
4%
Market/Effective interest...
Number of bonds issued 500 Par value per bond $1,800 Stated interest rate 4% Market/Effecti...
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