LL_posted

# LL_posted - Long-term Liabilities (Ch 14) Page 2 B) EXAMPLE...

This preview shows pages 1–6. Sign up to view the full content.

Long-term Liabilities (Ch 14) Page 2 B) EXAMPLE 1 : Plain vanilla bonds issued when the market rate ≠ the coupon rate. Naylor Corporation, a company with a 12/31 year- end, issued ten-year, 10% bonds (payable annually) to Bank on January 1 with face value of \$100,000. REQUIRED: a. If the market interest rate (i.e., effective interest

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Long-term Liabilities (Ch 14) Page 3 C) EXAMPLE 2 : Plain vanilla bonds with a couple of twists . On April 1, 2010, Walker Inc., a company with a 12/31 year-end, issued \$700,000 of 12% (annual rate) bonds payable, dated April 1. Interest is payable semi-annually on September 30 and March 31. The bonds mature in three years. The market yield for bonds of similar risk and maturity is 10%. The entire bond issue was purchased by United Group, Inc. a. Calculate the issue price of the bonds. 6 n, 5 I/Y, 42,000 pmt, 700,000 FV  PV = \$735,530
Long-term Liabilities (Ch 14) Page 3 interest rate table that shows the first year of the bond (April 1, 2010 to March 31, 2011). Date (1) Cash Paid (2) Interest Expense = prior (4) * 5% (3) Amortized premium = (1) – (2) (4) CV of bond = prior (4) – (3) 4/110 \$735,530 9/30/10 \$42,000 \$36,777 \$5,223 730,307 3/31/11 42,000 36,515 5,485 724,822

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Long-term Liabilities (Ch 14) Page 5 F). EXAMPLE 3: On January 1, 2010, Oak Hall, makers of graduation caps and gowns issued \$200,000 bonds payable with a stated interest rate of 8%. Interest is paid each December 31. The bonds mature in 10 years and are callable after the 4th year at 101% of face value. The bonds originally sold on January 1, 2010 to yield 7%. On January 1, 2016, the bonds were called because interest rates were falling . . The company uses effective-interest amortization, and the accounting period
Long-term Liabilities (Ch 14) Page 5 a. Prepare the journal entry for the bond issuance on January 1, 2010. Dr: cash \$214,047 Cr: premium \$14,047 Cr: B/P \$200,000 b. Give the entries for interest expense for 2010 through 2015.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 02/22/2012 for the course ACCT 401 taught by Professor Winchel during the Spring '10 term at South Carolina.

### Page1 / 13

LL_posted - Long-term Liabilities (Ch 14) Page 2 B) EXAMPLE...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online