CH 28.docx - And the parent issued bonds for $400,000 at a...

This preview shows page 1 out of 1 page.

And 12/31/13 the parent issued bonds for $400,000 at a 6% face amount. They actually received $426,340. Because the interest rate in the market place would havebeen a little bit lower. So the marketplace was expecting maybe 5 and 1/2 %. But these bonds are actually going to pay 6%. So an investor was willing to pay more. The bond premium is amortized over a straight-line method. Then December 31, two years later, the subsidiary goes out in the open marketplace and buys thosebonds from whoever bought them originally from the parent. And they bought for $389,000 so the interest rate actually went above 6%. The bond had an effectiveyield of 7%. So those bonds became less valuable on the marketplace than they were when they originally issued by the parent. And that may have been one of the reasons a subsidiary went out and bought those bonds. So now all we have is the subsidiary owning the bonds originally issuedby the parent. So w e have an indirect lending situation.
Image of page 1

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern