Question

BONDS :

Huskies Corp. issued 9-year $750,000 bond on January 1, 2006 with coupon rate of 10%. The bond pays interest semiannually every June 30 and December 31, with the principal to be paid at the end of year 9. The effective market interest rate at the issuance date is 8%.

a. Calculate the proceeds and show clearly what you use for RATE, NPER, PMT, FV ?

b. What journal entry was recorded at issuance?

c. What annual coupon rate would Huskies have to offer in order to obtain total proceeds of $750,000 on the issuance of these bonds

d. UNRELATED to above. Labradors Inc. repurchased the bond which has been issued several years ago and which has a Face Value of $800,000 and unamortized premium of $42,000. The bond was repurchased at 106. Record the journal entry that the company made when it repurchased the bond.

Answer 1

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

D)

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

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