Adonis Corporation issued 10-year, 7% bonds with a par value of $130,000. Interest is paid semiannually....

Adonis Corporation issued 10-year, 7% bonds with a par value of $130,000. Interest is paid semiannually. The market rate on the issue date was 6%. Adonis received $139,674 in cash proceeds. Which of the following statements is true?

Adonis must pay $139,674 at maturity plus 20 interest payments of $4,550 each.
Adonis must pay $130,000 at maturity plus 20 interest payments of $4,550 each.
Adonis must pay $130,000 at maturity plus 20 interest payments of $3,900 each.
Adonis must pay $139,674 at maturity and no interest payments.
Adonis must pay $130,000 at maturity and no interest payments.

Expert Solution

Answer: 2^nd option

Since the market interest rate (6%) is lower than the stated interest rate (7%), the bond is issued at premium.

Premium amount = Cash received – Par value of bonds

= 139,674 – 130,000

= $9,674

This premium should be amortized in 10 years out of 2 payments in each year. Therefore, the periods of amortization are (10 × 2 =) 20.

Amortization of premium in each semi-annual period = $9,674 × (1 / 20)

= $483.70

Stated interest = Face value of bond × Stated rate × (1/ 2 semi-annual payments)

= 130,000 × 7% × ½

= $4,550

Actual interest payment is $4,550 in each semi-annual period (but the interest expense is (4,550 – 483.70 =) $4,066.30) up to 20 periods and at the end of 20 years the face value of $130,000 should be paid.

ekkarill92 answered 6 months ago

Adonis Corporation issued 10-year, 11% bonds with a par value of $270,000. Interest is paid semiannually....

Adonis Corporation issued 10-year, 11% bonds with a par value of $270,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adonis received $286,827 in cash proceeds. Which of the following statements is true? a) Adonis must pay $286,827 at maturity and no interest payments. b) Adonis must pay $270,000 at maturity and no interest payments. c) Adonis must pay $270,000 at maturity plus 20 interest payments of $13,500 each. d) Adonis must pay $286,827 at...

Gleason Enterprises issued 12%, 7-year, $2,630,000 par value bonds that pay interest semiannually on October 1...

Gleason Enterprises issued 12%, 7-year, $2,630,000 par value bonds that pay interest semiannually on October 1 and April 1. The bonds are dated April 1, 2020, and are issued on that date. The discount rate of interest for such bonds on April 1, 2020, is 14%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What cash proceeds did Gleason receive from issuance of the bonds? (Round answer...

A company issued 9%, 15-year bonds with a par value of $560,000 that pay interest semiannually....

A company issued 9%, 15-year bonds with a par value of $560,000 that pay interest semiannually. The market rate on the date of issuance was 9%. The journal entry to record each semiannual interest payment is: Multiple Choice Debit Bond Interest Expense $510,000; credit Cash $510,000. No entry is needed, since no interest is paid until the bond is due. Debit Bond Interest Expense $50,400; credit Cash $50,400. Debit Bond Interest Expense $25,200; credit Cash $25,200. Debit Bond Interest Payable...

A company issued 9%, 15-year bonds with a par value of $650,000 that pay interest semiannually....

A company issued 9%, 15-year bonds with a par value of $650,000 that pay interest semiannually. The market rate on the date of issuance was 9%. The journal entry to record each semiannual interest payment is: Multiple Choice Debit Bond Interest Expense $29,250; credit Cash $29,250. Debit Bond Interest Payable $43,333; credit Cash $43,333. Debit Bond Interest Expense $600,000; credit Cash $600,000. No entry is needed, since no interest is paid until the bond is due. Debit Bond Interest Expense...

A company issued 8%, 15-year bonds with a par value of $580,000 that pay interest semiannually....

A company issued 8%, 15-year bonds with a par value of $580,000 that pay interest semiannually. The market rate on the date of issuance was 8%. The journal entry to record each semiannual interest payment is: Multiple Choice Debit Bond Interest Expense $46,400; credit Cash $46,400. Debit Bond Interest Expense $530,000; credit Cash $530,000. Debit Bond Interest Expense $23,200; credit Cash $23,200. No entry is needed, since no interest is paid until the bond is due. Debit Bond Interest Payable...

Matthew Company issued 10-year, 7% bonds (paying semiannual interest) with a par value of $100,000. The...

Matthew Company issued 10-year, 7% bonds (paying semiannual interest) with a par value of $100,000. The market rate of interest when the bonds were issued was 6%. Compute the price of the bonds when they were issued. **How do i answer this NOT using a financial calculator**

A 10-year, $1,000 par value bond has a 6.75% coupon rate with interest paid semiannually. The...

A 10-year, $1,000 par value bond has a 6.75% coupon rate with interest paid semiannually. The bond currently sells for $850. What is the capital gains yield on these bonds? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

7 years ago Sunland Corporation issued 20-year bonds that had a $1,000 face value, paid interest...

7 years ago Sunland Corporation issued 20-year bonds that had a $1,000 face value, paid interest annually, and had a coupon rate of 7 percent. If the market rate of interest is 5.5 percent today, what is the current market price of an Sunland Corporation bond? Current market price _____

Harrison Company issued $600,000 of 10%, 20-year bonds on January 1, 2020. Interest is paid semiannually...

Harrison Company issued $600,000 of 10%, 20-year bonds on January 1, 2020. Interest is paid semiannually on July 1 and December 31 each year. Harrison Company uses the straight-line method of amortization for bond premium or discount. B. Assume the bonds are issued at 100. Provide the journal entries for the issuance of the bonds and the first two interest payments. (3 points)

Sandhill Co. issued 8%, 9-year, $2,618,600 par value bonds that pay interest semiannually on October 1...

Sandhill Co. issued 8%, 9-year, $2,618,600 par value bonds that pay interest semiannually on October 1 and April 1. The bonds are dated April 1, 2017, and are issued on that date. The discount rate of interest for such bonds on April 1, 2017, is 8%. What cash proceeds did Sandhill receive from issuance of the bonds?

Question