Question
In: Accounting
On January 1, 2018, The Partial had bonds with a face value of $ 1,000,000, a...
On January 1, 2018, The Partial had bonds with a face value of $ 1,000,000, a coupon rate of 12% and an unpaid balance (book value) of $ 966,130. The contract specified a call price of $ 981,000.
The bonds were previously issued with a market yield of 14% and interest is paid semi-annually, every June 30 and December 31. The company retired the bonds early on July 1, 2018. What is the book value of July 1, 2018?
a) $ 966,130
b) $ 973,759
c) $ 981,000
d) $ 958,501
e) None of the above
Solutions
Expert Solution
Answer:
Option (b) is the correct answer. i.e $973,759
Explanation:
| Bonds payable (Face amount) | $ 1,000,000 |
| Less: Discount on bonds payable ($1,000,000 - [966,130 + 7,629]) | 26,241 |
| Book value of July 1, 2018 | $ 973,759 |
| Interest expense ($966,130*7%) | 67,629 | |
| Discount on bonds payable (difference) | 7,629 | |
| Cash | 60,000 | |
| Bonds payable (Face amount) | 1,000,000 | |
| Loss on early extiguishment (balance) | 7,241 | |
| Discount on bonds payable ($1,000,000 - [966,130 + 7,629]) | 26,241 | |
| Cash (Call price) | 981,000 |
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