Exam 2: Non-Current Financial Liabilities

A $100,000 5-year 7% bond is issued on January 1,2017.The bond pays interest annually.The market rate is 5%.What is the selling premium or discount on the bonds,rounded to nearest dollar?

What is the coupon rate?

A $100,000 5-year 7% bond is issued on January 1,2017.The bond pays interest annually.The market rate is 6%.What is the selling premium or discount on the bonds,rounded to nearest dollar?

Ginny Inc.sold $800,000 of two-year bonds for $701,500 less commissions of $50,500.Interest is of 5.5% is payable semi-annually.What is the effective rate of interest (round to 2 decimal places)?

What are "serial bonds"?

Missouri Wheels Ltd.(MW)sold $9,000,000 of fourteen-year,3% bonds at par on January 1,2017.Interest is payable on June 30 and December 31 each year.The bonds can be called at any time at 103 plus accrued interest.On April 1,2018,MW bought back $3,500,000 of bonds on the open market for $2,600,000 including accrued interest and retired them.On August 1,2019,MW called $4,500,000 of bonds and retired them.MW prepares accrual entries only at year-end. Required: Prepare journal entries to record: a.The open market purchase of the bonds on April 1,2018. b.The calling of the bonds on August 1,2019. c.Retirement of the remaining bonds on December 31,2030,assuming that the final interest payment has already been recorded in the company's books.

Raysport Inc.sells $1,000,000 of three-year bonds on January 1,2017,for $980,000.The coupon rate on the bonds is 6% payable on July 1 and January 1.Transaction costs directly attributable to issuing the bonds total $20,000.Raysport Inc's fiscal year-end is December 31.The effective semi-annual rate is 3.6510%.On October 1,2018,Raysport Inc.repurchases the bonds on the open market for total consideration of $980,000 cash.Raysport uses the effective interest method. Required: Record the journal entries for derecognition at October 1,2018.

Based on the characteristics provided below,what kind of bond is being discussed? 1.________ are a set of bonds issued at the same time but that mature at regular scheduled dates rather than all on the same date. 2.________ are bonds that never mature. 3.________ allow the holder to exchange the bond into other securities in the corporation,usually common shares. 4.________ protect investors against inflation.

There are three independent situations summarized below.In all three cases the bonds are sold on January 1,2016 and the issuing company has a December 31 year-end.In situation three,the bonds were all repurchased at par on January 1,2020. Required: Prepare journal entries to record: a.The issuance of the three bonds. b.Payment of interest and related amortization on December 31,2016.Prepare the amortization table to help you. c.Retirement of the situation 3 bond on January 1,2020.

Fast Track Inc.is in the process of acquiring another business.In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity).The two proposals being contemplated are detailed below: Required: a.Calculate the estimated return on equity (ROE)under the two proposals.(ROE = net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (1 - tax rate)). b.Which proposal will generate the higher estimated ROE?

Canaroo Inc.sold $800,000 of two-year bonds for $701,500 less commissions of $50,500.Interest is of 5.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

A $100,000 5-year 7% bond is issued on January 1,2017.The bond pays interest annually.The market rate is 6%.What is the selling price of the bonds,rounded to nearest dollar?

Legally Yours,a law firm,sells $8,000,000 of four-year,8% bonds priced to yield 6.6%.The bonds are dated January 1,2018,but due to some regulatory hurdles are not issued until March 1,2018.Interest is payable on January 1 and July 1 each year.The bonds sell for $8,388,175 plus accrued interest. In mid-June,Legally Yours earns an unusually large fee of $11,000,000 for one of its cases.They use part of the proceeds to buy back the bonds in the open market on July 1,2018 after the interest payment has been made.Legally Yours pays a total of $8,456,234 to reacquire the bonds and retires them. Required: Prepare journal entries to record: a.The issuance of the bonds-assume that Legally Yours has adopted a policy of crediting interest expense for the accrued interest on the date of sale. b.Payment of interest and related amortization on July 1,2018. c.Reacquisition and retirement of the bonds.

A $100,000 5-year 6% bond is issued on January 1,2017.The bond pays interest annually.The market rate is 7%.What is the discount or premium of the sale of the bonds,rounded to nearest dollar?

Explain 3 instances when the fair value of the non-current liability will not equal the cash proceeds.

Contrast the two methods used by investment banks when selling bonds on behalf of a company,their client.

What is meant by the "spread" charged by banks on loans?

Which statement is correct about offsetting?

Over the River Co.(OTRC)sells $1,200,000 of 6-year,10% bonds at par plus accrued interest.The bonds are dated January 1,2017 but due to market conditions are not issued until May 1,2017.Interest is payable on June 30 and December 31 each year.The market rate of interest at time of issue is the same as the stated rate. Required: Prepare journal entries to record: a.The issuance of the bonds on May 1,2017.Assume that OTRC has adopted a policy of crediting accrued interest payable for the accrued interest on the date of sale. b.Payment of interest on June 30,2017. c.Payment of interest on December 31,2017.

A $100,000 5-year 5% bond is issued on January 1,2017.The bond pays interest annually.The market rate is 7%.What is the selling premium or discount on the bonds,rounded to nearest dollar?