Week 5 class 1

Week 5 class 1 - Week 5 class 1 (15-20 min.) Req. 1 Initial...

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Week 5 class 1 (15-20 min.) E 8-15 Req. 1 Initial carrying amount of bonds ($500,000 × 0.985) $492,500 Plus: Amortization of bonds December 31, 2006 through December 31, 2010 ($7,500 × 4/10) 3,000 Carrying amount of bonds at December 31, 2010… $495,500 Req. 2 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 2010 Dec. 31 Bonds Payable. .................................. 500,000 Discount on Bonds Payable ($500,000 – $495,500). ............. 4,500 Common shares. .......................... 495,500 eq. 3 The conversion will: a. Decrease the debt ratio (by decreasing total liabilities). b. Increase the times-interest-earned ratio (by decreasing interest expense). After the conversion, the company will look less risky.
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(30-40 min.) P 8-4A Req. 1 The 8 1/2% bonds issued when the market interest rate is 8 7/8% will be priced at a discount . They are relatively unattractive in this market, so investors will pay less than face value to acquire them. Req. 2 The 8 1/2% bonds issued when the market interest rate is 7 3/8% will be priced at a premium . They are relatively attractive in this market, so investors will pay a price above face value to acquire them.
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(continued) P 8-4A Req. 3 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 2006 a. Feb. 28 Cash ($500,000 × 0.97). ....................... 485,000 Discount on Bonds Payable. ............... 15,000 Bonds Payable. ................................ 500,000 To issue bonds at a discount. b. Aug.
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This note was uploaded on 10/18/2010 for the course ACF ACC220 taught by Professor Fiona during the Spring '08 term at Seneca.

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Week 5 class 1 - Week 5 class 1 (15-20 min.) Req. 1 Initial...

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