a. Assume that the market interest rates were slightly higher than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain. b. Independent of your answer to part a, assume that the proceeds were $14,820,000. Use the horizontal model (or write the journal entry) to show the effect of issuing the bonds. C. Calculate the interest expense that Coley Co. will show with respect to these bonds in its income statement for the fiscal year ended September 30, 2013, assuming that the discount of $180.000 is amortized on a straight-line basis.

a. Assume that the market interest rates were slightly higher than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain. b. Independent of your answer to part a, assume that the proceeds were $14,820,000. Use the horizontal model (or write the journal entry) to show the effect of issuing the bonds. C. Calculate the interest expense that Coley Co. will show with respect to these bonds in its income statement for the fiscal year ended September 30, 2013, assuming that the discount of $180.000 is amortized on a straight-line basis.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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5. Compute the price of $94,580,761 received for the bonds by using the tables shown in Present Value Tables. (Round to the nearest dollar.) Present value of the face amount Present value of the semiannual interest payments Price received for the bonds
b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the straight-line method. Round to the nearest dollar. Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Receivable 3. Determine the total interest expense for Year 1. Round to the nearest dollar. 4. Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest? 5. Compute the price of $23,854,460 received for the bonds by using Present value at compound interest, and Present value of an annuity. Round to the nearest dollar. Your total may vary slightly from the price given due to rounding differences. Present value of the face amount Present value of the semiannual interest payments Price received for the bonds
On the first day of its fiscal year, Jacinto Company issued $14,700,000 of five-year, 8% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Jacinto Company receiving cash of $14,118,450. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. 3. Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. Cash 1. 14,118,450 Discount on Bonds Payable 581,550 Bonds Payable 14,700,000 2. Interest Expense 529,845 Discount on Bonds Payable v 581,155 Cash V 588,000 Interest Expense 3. 529,845 Discount on Bonds Payable 58,155 Cash 588,000
Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount. (Round your answers to nearest dollar amount.) Required Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount. (Round your answers to nearest dollar amount.) \table[[,, \table[[Cash], [Proceeds]], \table[[Discount or], [Premium]]], [a., Pear, Inc. issued $190,000 of 10-year,8 percent bonds at 103., Premium,], [b., Apple, Inc. issued $92,000 of five-year, 12 percent bonds at 99.,, Discount], [c., Cherry Co. issued $196,000 of five-year, 6 percent bonds at 1031/4., Premium,], [d., Grape, Inc. issued $39,000 of four-year, 8 percent bonds at 99.00., Discount,]] Required Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount. (Round your answers to nearest dollar amount.) a.…
Assume Lyda Inc. sold bonds with a face value of P500,000 for P530,000. Was the market interest rate equal to or greater than the bonds’ contractual interest rate? What are the financial ratios used to analyze current liabilities and long-term liabilities?
Select the correct answer to each of the following statements. A. Increase B. Decrease C. Remain Constant 1. The amount of interest expense will _______ each payment period for a bond issued at a discount. 2. When a bond is issued at a discount, the cash interest payment will _________ over the life of the bond. 3. When a bond is issued at a premium, the carrying value of the bond will _______ over the life of the bond.
Calculate the accrued interest (in $) and the total proceeds (in $) of the bond sale. (Round your answers to the nearest cent.)
1. The amortization of a discount on an investment in bonds measured at amortized cost A. Increases the carrying amount of the investment B. Is the excess of interest income over interest received or receivable. C. Is recorded directly to the invesment account D. All of these 2. Which of the following statements is correct for an investment in term bonds that was acquired at a premium? A. The amortized cost of the bonds increases annually. B. The current and non current portions of the bonds as of the reporting date are reported separately. C. The interest income recognized each year is higher than the amount of interest received/ receivable. D. The effective interest rate is lower than the stated rate of the bonds. 3. The rate used in computing for interest receivable on debt instruments measured at amortized cost is the A. Nominal rate B. Effective interest rate C. Yield rate D. Celeb rate 4. The transaction costs of acquiring an investment measured at…
Terms related to long-term debt. Place the letter of the best matching phrase before each word. 1. Indenture 6. Times Interest Earned Ratio Refunding Bonds Issued at Par 2. 7. Mortgage 3. 8. Premium on Bonds Carrying Value Nominal Rate 4. 9. Reacquisition Price 5. 10. Market Rate Requires that bond discount be reported in the balance sheet as a direct deduction from the face of the bond. b. a. Rate set by party issuing the bonds which appears on the bond instrument. The interest paid each period is the effective interest at date of issuance. d. C. Rate of interest actually earned by the bondholders. Results when bonds are sold below par. f. e. Results when bonds are sold above par. The replacement of an existing bond issuance with a new one. g. h. Price paid by issuing corporation for its own bonds. Book value of bonds at any given date. Ratio of current assets to current liabilities. i. k. The bond contract or agreement. 1. Indicates the company's ability to meet interest payments as…
13. An investor purchases bonds with a face value of $100,000. Payment for thebonds includes (a) a premium (b) accrued interest rate and (c) brokeragefees. How would each of these charges be recorded and what dispositionwould ultimately be made of each of these charges??
Enumerate the following; 32. Provides for recognition of an equal amount of premium or discount amortization each period. 33. Bonds that mature in one lump sum at a specified future date. 34. Bonds that provide for conversion into some other security at the option of the stockholder. 35. Bonds that mature in a series of installments at future dates. 36. The difference between the face value and the sales price when bonds are sold below their face value. 37. Bonds for which assets are pledged to guarantee repayment. 38. Obligations that are not expected to be paid in cash within one year or the normal operating cycle. 39. Bonds that do not bear interest but instead are sold at significant discounts providing the investor with a total interest payoff at maturity. 40. Costs incurred by the issuer for legal services, printing and engraving, taxes, and underwriting in connection with the sale of a…
Use the information below for questions 21-22 25. If bonds are issued at a discount, it means that the b. market interest rate is higher than the contractual interest d. bondholder will receive effectively less interest than the c. market interest rate is lower than the contractual interest rate. net income of $300,000. total assets of $1,500,000. 21. Ritter's return on assets ratio is a. 24% b. 37.5% 30% c. d. 20% 22 Ritter's asset turnover ratio is a. 2 times. b. 1.6 times. c. 1.3 times. d. .96 times. 23. Research and development costs a. are classified as intangible assets. b. must be expensed when incurred under generally accepted accounting principles. c. should be included in the cost of the patent they relate to. d. are capitalized and then amortized over a period not to exceed 40 years. 24. If bonds are issued at a premium, the contractual interest rate is a. higher than the market rate of interest. b. lower than the market rate of interest. c. too low to attract investors. d.…

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