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NP+10e+Ch10+Solutions

NP+10e+Ch10+Solutions - P10-3 Murcia Corporation 1 Bonds...

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P10-3 Murcia Corporation 1. Bonds Issued at 103.5 on May 1, 2009 1-May Cash $4,140,000 ($4,000,000 x 1.035) Bonds Payable $4,000,000 Premium on Bonds Payable $140,000 ($4,140,000 - $4,000,000) 31-Oct Interest Expense $187,200 ($190,000 - $2,800) Premium on Bonds Payable $2,800 ($140,000 / 50) Cash $190,000 ($4,000,000 x 9.5% x 6/12) 2. Bonds Issued at 96.5 on May 1, 2009 1-May Cash $3,860,000 ($4,000,000 x 0.965) Discount on Bonds Payable $140,000 ($4,000,000 - $3,860,000) Bonds Payable $4,000,000 31-Oct Interest Expense $192,800 ($190,000 + $2,800) Discount on Bonds Payable $2,800 ($140,000 / 50) Cash $190,000 ($4,000,000 x 9.5% x 6/12) 3. Retirement of Bonds Issued at 103.5 1-May Bonds Payable $4,000,000 Premium on Bonds Payable $84,000 [$140,000 - ($2,800 x 20)] Loss on Retirement of Bonds $36,000 (Plug) Cash $4,120,000 ($4,000,000 x 1.03) 4. Conversion of Bonds Issued at 96.5 1-May Bonds Payable $4,000,000 Discount on Bonds Payable $84,000 [$140,000 - ($2,800 x 20)] Common Stock $1,600,000 Additional Paid-in Capital $2,316,000 ($4,000,000 - $1,600,000 - $84,000) 5. Comments If stock prices rise significantly over 10 years, bondholders would be better off the convert to stock than to accept cash. Furthermore, the company would be better off by not using cash to call the bonds. A disadvantage might be the dilutive effect of distributing more shares and thus EPS and ROE figures would be adversely affected.
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P10-4 Dygat Corporation 1. Bonds Issued at Premium Cash Payment Amort. Book Value 1-Jun Cash $10,300,000 6/1/2010 FV x 10.5% BV x 10.1% $10,300,000.00 Premium on Bonds Payable $300,000 11/1/2010 $525,000.00 $520,150.00 $4,850.00 $10,295,150.00 Bonds Payable $10,000,000 5/31/2011 $525,000.00 $519,905.08 $5,094.92 $10,290,055.08 Issued 10.5% 20-Year Bonds at 103
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