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BONDS : Huskies Corp. issued 9-year $750,000 bond on January 1, 2006 with coupon rate of 10%....

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Accounting

BONDS :

Huskies Corp. issued 9-year $750,000 bond on January 1, 2006with coupon rate of 10%. The bond pays interest semiannually everyJune 30 and December 31, with the principal to be paid at the endof year 9. The effective market interest rate at the issuance dateis 8%.

a. Calculate the proceeds and show clearly what you use forRATE, NPER, PMT, FV ?

b. What journal entry was recorded at issuance?

c. What annual coupon rate would Huskies have to offer in orderto obtain total proceeds of $750,000 on the issuance of thesebonds

d. UNRELATED to above. Labradors Inc. repurchased the bond whichhas been issued several years ago and which has a Face Value of$800,000 and unamortized premium of $42,000. The bond wasrepurchased at 106. Record the journal entry that the company madewhen it repurchased the bond.

Answer & Explanation Solved by verified expert
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A. When the bond stated rate is higher than the market interest rate, the bond is sold at a premium, and the issuing company will receive more than the face value of the bond. the Details are as under

01-01-06 Issue            750,000.00
Coupon Rate 5%
YTM 4.0%
Period 18
Interest payment               37,500.00
PV ($844,944.73)
Date Interest Payment Interest Expenses Premuim Amortisation Amortized Cost
01-01-06 Proceeds $844,944.73
30-06-06                 37,500.00 $33,797.79 ($3,702.21) $841,242.52
31-12-06                 37,500.00 $33,649.70 ($3,850.30) $837,392.22
30-06-07                 37,500.00 $33,495.69 ($4,004.31) $833,387.91
31-12-07                 37,500.00 $33,335.52 ($4,164.48) $829,223.42
30-06-08                 37,500.00 $33,168.94 ($4,331.06) $824,892.36
31-12-08                 37,500.00 $32,995.69 ($4,504.31) $820,388.05
30-06-09                 37,500.00 $32,815.52 ($4,684.48) $815,703.58
31-12-09                 37,500.00 $32,628.14 ($4,871.86) $810,831.72
30-06-10                 37,500.00 $32,433.27 ($5,066.73) $805,764.99
31-12-10                 37,500.00 $32,230.60 ($5,269.40) $800,495.59
30-06-11                 37,500.00 $32,019.82 ($5,480.18) $795,015.41
31-12-11                 37,500.00 $31,800.62 ($5,699.38) $789,316.03
30-06-12                 37,500.00 $31,572.64 ($5,927.36) $783,388.67
31-12-12                 37,500.00 $31,335.55 ($6,164.45) $777,224.21
30-06-13                 37,500.00 $31,088.97 ($6,411.03) $770,813.18
31-12-13                 37,500.00 $30,832.53 ($6,667.47) $764,145.71
30-06-14                 37,500.00 $30,565.83 ($6,934.17) $757,211.54
31-12-14                 37,500.00 $30,288.46 ($7,211.54) $750,000.00
              375,000.00              330,550.86                           (44,449.14)

b) Entry at issuance as follows:

CASH DR $844,944.73
BOND CR            750,000.00
Premium on Bond Payable CR $94,944.73
( Being entry pass at issuance)

c) When the bond stated rate is equal to  market interest rate than proceeds is $ 7,50,000

D)

Premuim on Bond Payable DR $42,000
Bond DR $1,018,000
BANK CR $1,060,000

.
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