need answer please provide it Logan Co. purchased $500,000 of 8% bonds of Harper Co. on January 1, 2015, paying $478,500. Thebonds mature on January 1, 2025; interest is payable each July 1 and January 1. The discount of$21,500 provides an effective yield of 9%. Logan Co. uses the effective-interest method and plans tohold these bonds to maturity.On July 1, 2015, Logan Co. should increase its Held-to-Maturity Debt Securities account for theHarper Co. bonds by:a. $2,752.50b. $1,993.50c. $1,250.00d. $759.00

To find the amount by which Logan Co. should increase its Held-to-Maturity Debt Securities account…

Answered: Logan Co. purchased $500,000 of 8%…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 5P

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On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
On January 1, 2020, Apple Co. purchased held-for-collection and sales bonds par value $2,000,000, 9% paying $1,920,000. The bonds mature on January 1, 2025, and pay interest on July 1 and January 1. Apple Co. sells these bonds on January 1, 2023, for €2,025,000, after the interest has been received. If the carrying value of the bonds at the selling date was €1,966,500. Apple Co. uses effective interest amortization (100% effective interest rate). The gain on the sale is: A. €80,000. B. €25,000. C. €58,500. D. €33,500.
Pharoah Company purchased $1700000 of 11% bonds of Scott Company on January 1, 2021, paying $1602375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $97625 provides an effective yield of 12%. Pharoah Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2021, Pharoah Company should increase its Debt Investments account for the Scott Company bonds by $5285. O $4881. $2643. $9763.
On January 1, 2017, Pearl Company purchased 12% bonds, having a maturity value of $284,000, for $305,531.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Pearl Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows. 2017 $303,400 $292,200 2018 2019 (a) (b) (c) $291,200 2020 2021 $293,200 $284,000 Prepare the journal entry at the date of the bond purchase. Prepare the journal entries to record the interest revenue and recognition of fair value for 2017. Prepare the journal entry to record the recognition of fair value for 2018.
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On January 1, 2023, Pronghorn Limited pays $105,753 to purchase $110,000 of Chan Corporation 9% bonds. The market rate of interest at the time was 10%. Pronghorn accounts for this investment at amortized cost using the effective interest method. The bonds mature on January 1, 2028, and interest is payable each July 1 and January 1. Note that the bond is acquired on an interest payment date and there is therefore no accrued interest for Pronghorn to pay on January 1. Pronghorn has an August 31 year end (a) * Your answer is incorrect. Calculate the amortization of the discount per month using the straight-line method. (Round answer to 2 decimal places, eg 125.55) SUPPOR
On January 1, 2017, Natifah Inc. acquires $500,000 of 8% bonds at a price of $552,970. The interest is payable each December 31, and the bonds mature December 31, 2037. The investment will provide Natifah Inc. a 7% yield. The bonds are classified as held-to-maturity. (2a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method. Date Cash Received Interest Revenue Amortization Carrying Amount (2b) Prepare the journal entry for the interest receipt of December 31, 2018, and the discount amortization under the effective interest method.
On January 1, 2020, Wildhorse Company purchased 6% bonds, having a maturity value of $550,000 for $475,253. The bonds provide the bondholders with a 8% yield. They are dated January 1, 2020, and mature January 1, 2027, with interest paid on June 30 and December 31 of each year. Wildhorse Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows. 2020 $476,000 2023 2021 $471,000 2024 $466,000 2022 (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entries to record the interest revenue and recognition of fair value for 2020. (c) Prepare the journal entry to record the recognition of fair value for 2021. (Round answers to 2 decimal places, eg. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for…
On January 1, 2020, Cheyenne Company purchased 4% bonds, having a maturity value of $420,000 for $357,515. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2020, and mature January 1, 2027, with interest paid on June 30 and December 31 of each year. Cheyenne Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows. 2020 $359,000 2021 2022 (a) (b) (c) 2023 $354,000 2024 $349,000 $379,000 $399,000 Prepare the journal entry at the date of the bond purchase. Prepare the journal entries to record the interest revenue and recognition of fair value for 2020. Prepare the journal entry to record the recognition of fair value for 2021. (Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required,…
Harvey Corp. purchases 10% bonds with face values of $200,000 on January 1, 2017. The bonds are dated January 1, 2017, and will mature on January 1, 2022. The bonds will pay interest on December 31 of each year. Harvey pays $215,970 for the bonds to yield 8% (market rate). Harvey accounts for the bonds at FV-OCI. Harvey’s fiscal year-end is December 31. Fair values of the bonds on December 31, 2017, and 2018 respectively are: 2017 2018 Prepare a table to show interest income, interest received and premium or discount amortization for the bonds for each of the five years. $214,040 $207,280 Prepare all the necessary journal entries at the end of 2017, to record interest income and adjustments to fair value. Prepare all the necessary journal entries at the end of 2018, to record interest income and adjustments to fair value. The fair value of the bonds on Dec. 31, 2019, was 198,800. 50% of the bonds were sold on June 1, 2020, at 98. Prepare all journal entries for the sale
On July 1, 2016, Pell Co. purchased Green Corp. 10-year, 8% bonds with a face amount of $500,000 for $420,000. The bonds mature on June 30, 2026, and pay interest semiannually on June 30 and December 31. Using the effective interest method, Pell recorded bond discount amortization of $1,800 for the six months ended December 31, 2016. From this long-term investment, Pell should report 2016 revenue of a. $16,800 b. $18,200 c. $20,000 d. $21,800

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