Chapter12InClassExercise

Chapter12InClassExercise - In‐Class Exercises Exercise#1...

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Unformatted text preview: In‐Class Exercises Exercise #1 Chapter 12 Prepare journal entries for the issuance of the following bonds. Treat each issue independently. a) On February 1, 2010, Ajax issued 1,000 bonds, each with a face value of $1,000. The bonds have a coupon rate of 6%, due semi‐annually on July 31st and January 31st of each year. The bonds mature on January 31, 2013. The yield for similar bonds is 6%. b) On May 1, 2011, Ajax issued 1,300 bonds, each with a face value of $1,000. The bonds have a coupon rate of 4%, due semi‐annually on September 30th and March 31st of each year. The bonds mature on March 31, 2016. Investors expect a yield of 6% for similar bonds. c) On September 1, 2012, Ajax issued 2,300 bonds, each with a face value of $1,000. The bonds have a coupon rate of 7%, due semi‐annually on November 30th and May 31st of each year. The bonds mature on May 31, 2025. The yield for similar bonds is 4%. d) On October 1, 2009, Ajax issued 1,000 bonds, each with a face value of $1,000. The bonds have no stated interest rate and do not require any interest payments. The bonds mature on September 30, 2014. The bonds are sold at a price that yields 4%. Exercise #2 On April 1, 2011, Ajax issued 1,200 bonds, each with a face value of $1,000. The bonds have a coupon rate of 8%, due semi‐annually on June 30th and December 31st of each year. the bonds mature on December 31, 2015. The yield for similar bonds is 9%. Use the effective interest method. a) Prepare a journal entry for the issuance of the bonds on April 1, 2011. b) Prepare a journal entries for the payment of interest on June 30, 2011 and December 31, 2015. c) Prepare a journal entry for the retirement of the bonds at maturity. d) Assume Ajax redeemed the bonds by purchasing all outstanding bonds in the market at 98.5 on July 1, 2013. Prepare the journal entry to record the redemption. ACCT 4050 Page 1 of 3 Chapter 12 ‐ In‐Class Exercises ...
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