BONDS : Huskies Corp. issued 9-year $750,000 bond on January 1, 2006 with coupon rate of 10%....

Free

80.2K

Verified Solution

Question

Accounting

BONDS :
Huskies Corp. issued 9-year $750,000 bond on January 1, 2006with coupon rate of 10%. The bond pays interest semiannually everyJune 30 and December 31, with the principal to be paid at the endof year 9. The effective market interest rate at the issuance dateis 8%.
a. Calculate the proceeds and show clearly what you use forRATE, NPER, PMT, FV ?
b. What journal entry was recorded at issuance?
c. What annual coupon rate would Huskies have to offer in orderto obtain total proceeds of $750,000 on the issuance of thesebonds
d. UNRELATED to above. Labradors Inc. repurchased the bond whichhas been issued several years ago and which has a Face Value of$800,000 and unamortized premium of $42,000. The bond wasrepurchased at 106. Record the journal entry that the company madewhen it repurchased the bond.

Answer & Explanation Solved by verified expert

4.2 Ratings (714 Votes)

Pls find the Answer

A. When the bond stated rate is higher than the market interest rate, the bond is sold at a premium, and the issuing company will receive more than the face value of the bond. the Details are as under

01-01-06	Issue	750,000.00
	Coupon Rate	5%
	YTM	4.0%
	Period	18
	Interest payment	37,500.00
	PV	($844,944.73)

Date	Interest Payment	Interest Expenses	Premuim Amortisation	Amortized Cost
01-01-06	Proceeds			$844,944.73
30-06-06	37,500.00	$33,797.79	($3,702.21)	$841,242.52
31-12-06	37,500.00	$33,649.70	($3,850.30)	$837,392.22
30-06-07	37,500.00	$33,495.69	($4,004.31)	$833,387.91
31-12-07	37,500.00	$33,335.52	($4,164.48)	$829,223.42
30-06-08	37,500.00	$33,168.94	($4,331.06)	$824,892.36
31-12-08	37,500.00	$32,995.69	($4,504.31)	$820,388.05
30-06-09	37,500.00	$32,815.52	($4,684.48)	$815,703.58
31-12-09	37,500.00	$32,628.14	($4,871.86)	$810,831.72
30-06-10	37,500.00	$32,433.27	($5,066.73)	$805,764.99
31-12-10	37,500.00	$32,230.60	($5,269.40)	$800,495.59
30-06-11	37,500.00	$32,019.82	($5,480.18)	$795,015.41
31-12-11	37,500.00	$31,800.62	($5,699.38)	$789,316.03
30-06-12	37,500.00	$31,572.64	($5,927.36)	$783,388.67
31-12-12	37,500.00	$31,335.55	($6,164.45)	$777,224.21
30-06-13	37,500.00	$31,088.97	($6,411.03)	$770,813.18
31-12-13	37,500.00	$30,832.53	($6,667.47)	$764,145.71
30-06-14	37,500.00	$30,565.83	($6,934.17)	$757,211.54
31-12-14	37,500.00	$30,288.46	($7,211.54)	$750,000.00
	375,000.00	330,550.86	(44,449.14)

b) Entry at issuance as follows:

CASH	DR	$844,944.73
BOND	CR	750,000.00
Premium on Bond Payable	CR	$94,944.73

( Being entry pass at issuance)

c) When the bond stated rate is equal to market interest rate than proceeds is $ 7,50,000

Premuim on Bond Payable	DR	$42,000
Bond	DR	$1,018,000
BANK	CR	$1,060,000

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member