Toefungus Ltd. issued $8,000,000 face value bonds, with an interest rate of 4.0 %, on July 1, 2020. The bonds mature in seven years time, on July 1, 2027 and pay interest semi-annually on July 1 and January 1. The company’s financial advisors have indicated that the yield the market is expecting to receive on their investment is 3.5 %. Toefungus Ltd. has a December 31 year end for financial and tax reporting and uses straight line amortization for allocating premium or discount. Required: a. Calculate the issue price for the bond. Show all steps and calculations. b. Prepare all journal entries required to account for bond transactions during the first full year the bond is outstanding. c. Clearly disclose all information related to this bond that would appear in the Company’s 2020 year-end financial statements.

Toefungus Ltd. issued $8,000,000 face value bonds, with an interest rate of 4.0 %, on July 1, 2020. The bonds mature in seven years time, on July 1, 2027 and pay interest semi-annually on July 1 and January 1. The company’s financial advisors have indicated that the yield the market is expecting to receive on their investment is 3.5 %. Toefungus Ltd. has a December 31 year end for financial and tax reporting and uses straight line amortization for allocating premium or discount. Required: a. Calculate the issue price for the bond. Show all steps and calculations. b. Prepare all journal entries required to account for bond transactions during the first full year the bond is outstanding. c. Clearly disclose all information related to this bond that would appear in the Company’s 2020 year-end financial statements.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 6P

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