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HW_9 Long-term Liabilities with solution

HW_9 Long-term Liabilities with solution - Homework#9...

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Homework #9: Long-term Liabilities (Ch 14), due on April 14. Problem 1: On January 1, 2011, Grape Company issued 10% bonds dated January 1, 2011, with a face amount of $20 million. The bonds mature in 2020 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Required: 1. Determine the price of the bonds at January 1, 2011. 2. Prepare the journal entry to record the bond issuance by Grape on January 1, 2011. 3. Prepare the journal entry to record interest on June 30, 2011, using the effective interest method. 4. Prepare the journal entry to record interest on December 31, 2011, using the effective interest method. Solution to Problem 1:
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Problem 2: On June 30, 2002, Banana Company issued 12% bonds with a par value of $600,000 due in 20 years. They were issued at 98 and were callable at 104 at any rate date after June 30, 2010. Because of lower interest rates and a significant change in the company’s credit rating, it was decided to call the entire issue on June 30, 2011, and to issue new bonds. New 10% bonds were sold in the amount of $800,000 at 102; they mature in 20 years. Banana Company uses straight- line amortization. Interest payment dates are December 31 and June 30.
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