Assume that on April 1, 2016?, Pacific?, Corp., issues 7 percent, 10-year bonds payable with a...

Assume that on April 1, 2016?, Pacific?, Corp., issues 7 percent, 10-year bonds payable with a maturity value of $100,000.

The bonds pay interest on March31 and September 30?, and Pacific amortizes any premium or discount by the? straight-line method. Pacific?'s fiscal? year-end is December 31.

1.	If the market interest rate is 6 percent when Pacific?, Corp., issues its? bonds, will the bonds be priced at? par, at a? premium, or at a? discount? Explain.
2.	If the market interest rate is 10 percent when Pacific?, ?Corp., issues its? bonds, will the bonds be priced at? par, at a? premium, or at a? discount? Explain.
3.	Assume that the issue price of the bonds is $106,000. Journalize the following bonds payable transactions? (round amounts to the nearest? dollar):
	a.	Issuance of the bonds on April 1, 2016
	b.	Payment of interest and amortization of premium on September 30?, 2016
	c.	Accrual of interest and amortization of premium on December 31?, 2016
	d.	Payment of interest and amortization of premium on March 31?, 2017

hey guys, I have a trouble with the above question, could you please helping me with this one?

Thanks!

Solutions

Expert Solution

Answer 1.

Annual Coupon Rate = 7%
Semiannual Coupon Rate = 3.5%

Annual Interest Rate = 6%
Semiannual Interest Rate = 3%

According to the rule:
If stated rate is higher than the market rate, then the bond are trading at premium
If stated rate is lower than the market rate, then the bond are trading at discount
If stated rate is equal to the market rate, then the bond are trading at par

So, these bonds are trading at premium

Answer 2.

Annual Coupon Rate = 7%
Semiannual Coupon Rate = 3.5%

Annual Interest Rate = 10%
Semiannual Interest Rate = 5%

So, these bonds are trading at discount

Answer 3.

Face Value = $100,000

Semiannual Coupon = 3.50% * $100,000
Semiannual Coupon = $3,500

Issue Price = $106,000

Premium on Issue = Issue Price - Face Value
Premium on Issue = $106,000 - $100,000
Premium on Issue = $6,000

Semiannual Period to Maturity = 20 (10 years)

Semiannual Amortization of Premium = Premium on Issue / Semiannual Period to Maturity
Semiannual Amortization of Premium = $6,000 / 20
Semiannual Amortization of Premium = $300

Semiannual Interest Expense = Semiannual Coupon - Semiannual Amortization of Premium
Semiannual Interest Expense = $3,500 - $300
Semiannual Interest Expense = $3,200

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

On February? 28, 2016?, Dolphin Corp. issues 6?%, 10?-year bonds payable with a face value of...

On February? 28, 2016?, Dolphin Corp. issues 6?%, 10?-year bonds payable with a face value of =$900,000. The bonds pay interest on February 28 and August 31. DolphinDolphin Corp. amortizes bond discount by the? straight-line method. 1. If the market interest rate is 5?% when DolphinDolphin Corp. issues its? bonds, will the bonds be priced at?par, at a? premium, or at a? discount? Explain. 2. If the market interest rate is 7?% when DolphinDolphin Corp. issues its? bonds, will the...

On January 1, 2016, BSC Corp issued a 10-year, $10,000,000, 7% bond. The interest is payable...

On January 1, 2016, BSC Corp issued a 10-year, $10,000,000, 7% bond. The interest is payable semi-annually. The market rate of interest for companies similar to BSC is 5%. BSC uses the effective-interest amortization method. The bond liability on BSC’s balance as of December 31, 2016 (the first year of the bond) is closest to: A. $11,435,336 B. $11,305,500 C. $11,497,889 D. $11,558,916 Based on the same information provided above, BSC’s interest expense for December 31, 2017 (the second year...

On February 28,2018, Marlin Corp. issues 8%, 10-year bonds payable with a face value of $600,000....

On February 28,2018, Marlin Corp. issues 8%, 10-year bonds payable with a face value of $600,000. The bonds pay interest on February 28 and August 31. The company amortizes bond discount using the straight line method. Requirement 1. If the market interest rate is 7% when Marlin corp issues its bonds, will the bonds be priced at par, at a premium, or at a discount? explain. The 8% bonds issued when the market interest rate is 7% will be priced...

Marigold Corp. issues $30600000 of 10-year, 7% bonds on March 1, 2020 at 97 plus accrued...

Marigold Corp. issues $30600000 of 10-year, 7% bonds on March 1, 2020 at 97 plus accrued interest. The bonds are dated January 1, 2020, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

Mo’s Motor Corp. issued $230,000 of 8%, 5-year bonds on April 1, 2021. Interest is payable...

Mo’s Motor Corp. issued $230,000 of 8%, 5-year bonds on April 1, 2021. Interest is payable semi-annually on April 1 and October 1. On April 1, 2023, immediately after making and recording the semi-annual interest payment, Mo’s redeemed the bonds. Below is a partial amortization schedule for the first few years of the bond issue. Mo's Motor Corp. Bond Discount Amortization Schedule Interest Period Interest Payment Interest Expense Amortization Bond Amortized Cost 01-Apr. 2021 $220,900.37 01-Oct. 2021 $9,200.00 $9,940.52 $740.52...

Company Corp. issues $1,000,000, 9%, semiannual bonds on 1/1/Year 1. The bonds mature in 10 years...

Company Corp. issues $1,000,000, 9%, semiannual bonds on 1/1/Year 1. The bonds mature in 10 years and have an effective rate of 10%. On 1/1/Year 2, Company Corp. retires the bonds at 110 plus accrued interest. Prepare the journal entry for the issuance of the bonds Prepare the entries for Year 1 related to the bond Prepare the entry for the retirement of the bonds

The Cinci Company issues $100,000, 10% bonds at 103 on April 1, 2020. The bonds are...

The Cinci Company issues $100,000, 10% bonds at 103 on April 1, 2020. The bonds are dated January 1, 2020 and mature six years from that date. Straight-line amortization is used. Interest is paid annually each December 31. Compute the bond carrying value as of December 31, 2023. Answer $_______________

On October 1, 2016, Indigo Corp. issued $960,000, 5%, 10-year bonds at face value. The bonds...

On October 1, 2016, Indigo Corp. issued $960,000, 5%, 10-year bonds at face value. The bonds were dated October 1, 2016, and pay interest annually on October 1. Financial statements are prepared annually on December 31. Prepare the journal entry to record the issuance of the bonds. Prepare the adjusting entry to record the accrual of interest on December 31, 2016. Show the balance sheet presentation of bonds payable and bond interest payable on December 31, 2016. Prepare the journal...

Serenity, Inc. is authorized to issue 11%, 10-year bonds payable. On January 1, 2016, when the...

Serenity, Inc. is authorized to issue 11%, 10-year bonds payable. On January 1, 2016, when the market interest rate is16%, the company issues $100,000 of the bonds. The bonds pay interest semiannually. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments.

on january 1st, year 1, a company issues $390,000 of 7% bonds, due in 10 years,...

on january 1st, year 1, a company issues $390,000 of 7% bonds, due in 10 years, with interest payable semiannually on june 30 and December 31 each year. Assuming the market interest rate on the issue date is 6%, the bonds will issue at $419,013. I need the answers for 1/1 year 1 carrying value: 6/30/year 1: ___________ cash paid, _____________ interest expense, _________________ change in carrying value, _________________ carrying value 12/31/year 1: ___________ cash paid, _______________ interest expense, _____________...

Subjects