On July 1, 2019, Cage Company exercises a $5,000 call option (plus par value) on its...

On July 1, 2019, Cage Company exercises a $5,000 call option (plus par value) on its outstanding bonds that have a carrying value of $495,000 and a par value of $500,000. The company exercises the call option after the semiannual interest paid on June 30, 2019.

Record the entry to retire the bonds.

Solutions

Expert Solution

Journal Entries
Date	Account Title and explanation	Debit	Credit

July 01, 2019	Bonds Payable	$ 5,00,000
	Premium on call Back bonds	$ 5,000
	Loss on issue of Bonds (diff in carrying value and par value)
	To Cash		$ 5,05,000
	To Discount on Bonds issue		$ 5,000
	(To record the retire of the Bonds)


	Note 1: There is loss of $ 5000 due to unamortiza balance of $ 5000 ($ 500,000 - $ 495,000)
	This loss of $ 5000 will be write off at the time of Buy back

	Note 2: Premium on Call Back bonds is Paid in cash extra on par value of Bond.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

1. A company issued 5,000 shares of its $2 par value common stock for $25 per...

1. A company issued 5,000 shares of its $2 par value common stock for $25 per share on 9-1-17. The entry to record this transaction is a) Debit to ,,,,,,,,,,,,,,,,, for $,,,,,,,,,,,,,,, b) Credit to ,,,,,,,,,,,,,,,,, for $ ,,,,,,,,,,,,, c) Credit to ,,,,,,,,,,,,,,,,,, for $,,,,,,,,, 2. A company has total paid in capital from common stock of $1,500,000 and total paid in capital from preferred stock of $350,000. It has retained earnings of $275,000 and there is treasury stock of...

1.) On January 1, 2019, Fap Company had 390,000 shares of its $1 par value common...

1.) On January 1, 2019, Fap Company had 390,000 shares of its $1 par value common stock outstanding. On March 1, Fap sold an additional 748,000 shares on the open market at $10 per share. Fap issued a 20% stock dividend on May 1. On August 1, Fap purchased 414,000 shares and immediately retired the stock. On November 1, 595,000 shares were sold for $15 per share. What is the weighted-average number of shares outstanding for 2019? (Rounded to the...

Draw the payoff diagram of an option that consists of 1 call (E=10) plus 1 put...

Draw the payoff diagram of an option that consists of 1 call (E=10) plus 1 put (E=15). Please draw the diagram with an explanation. Thank you!

Calculate the call option value at the end of one period for a European call option...

Calculate the call option value at the end of one period for a European call option with the following terms: The current price of the underlying asset = $80. The strike price = $75 The one period, risk-free rate = 10% The price of the asset can go up or down 10% at the end of one period. What is the fundamental or intrinsic value? What is the time premium?

A call option with a current value of $7.90. A put option with a current value...

A call option with a current value of $7.90. A put option with a current value of $7.60. Both options written on the same stock, with 1 year until expiration, and a strike price of $54.00. The prevailing risk-free rate is 5.00%. What must be the current price of the stock on which these two options are written? *** In your calculations, use simple discounting instead of continuous discounting. Also, do not enter the dollar sign and use two decimals...

A call option with a current value of $6.20. A put option with a current value...

A call option with a current value of $6.20. A put option with a current value of $7.90. Both options written on the same stock, with 1 year until expiration, and a strike price of $60.00. The prevailing risk-free rate is 8.00%. What must be the current price of the stock on which these two options are written?

An investor has an option portfolio composed of 5,000 identical short call options. The call option’s...

An investor has an option portfolio composed of 5,000 identical short call options. The call option’s delta is 0.4. What does it mean intuitively that the delta is 0.4? How can the portfolio be made delta-neutral? How will the delta-neutral portfolio’s value change if there is a small (e.g. 0.1%) upward movement in the stock price? Will the delta-neutral portfolio’s value change if there is a large (e.g. 10%) upward movement in the stock price? If no, why not. If...

10.15 - On 1 July 2019, Cosway Ltd purchased equipment for its fair value and then...

10.15 - On 1 July 2019, Cosway Ltd purchased equipment for its fair value and then leased it to Valley Ltd, incurring $2548 in costs to prepare and execute the lease document. Valley Ltd incurred $1935 in costs to negotiate the agreement. The equipment is expected to have an economic life of 6 years, after which time it will have a residual value of $6000. The lease agreement details are as follows. Length of lease 5 Years Commencement date 1...

On July 1, 2016, when its $1 par value common stock was selling for $66 per...

On July 1, 2016, when its $1 par value common stock was selling for $66 per share, Indy Hotels Corp. issued $25,000,000 of 6% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into 10 shares of the corporation’s common stock. The debentures were issued for $26,500,000. The corporation believes the difference between the par value and the amount paid is attributable to the conversion feature. On January 1,...

Options: 1. (a) Indicate when the $2.50 September 2019 AMP call option is in-, at-, and...

Options: 1. (a) Indicate when the $2.50 September 2019 AMP call option is in-, at-, and out-of-the-money. (b) Draw the payoff line for the long position in the $11 June 2019 Westfield call given its premium is $0.58 2. Suppose the $10 June Brambles 2018 call option was purchased for $1. Indicate whether the holder would exercise the option, and the profit or loss on the position given at the expiry date in June the share price is (i) $8,...

Subjects