Home / Questions / Predecessor Company Inc. has outstanding $8,000,000 of 9%, 15-year callable bonds with a
Predecessor Company Inc. has outstanding $8,000,000 of 9%, 15-year callable bonds with a carrying value of $7,750,000 and a call price of 103 1/2. The current market price of the bonds is 105 1/2.
a.Should Predecessor Company Inc. call the bonds or purchase them on the open market?
b.Prepare the entry to record the retirement of the bonds under the most advantageous plan to Predecessor Company Inc.
c.How will the gain or loss on the retirement of the bonds appear on Predecessor's financial statements?
32) On January 1, 2011, Tranche Corp. issued $750,000 of 8%, 10-year bonds, with annual interest payments on December 31. The bonds were issued for $657,831 yielding an effective-interest rate of 10%. Tranche Corp. uses the effective-interest method of amortization.
a.Prepare the necessary journal entries to record the issuance of the bonds and the first interest payment.
b.Determine the carrying value of the bonds on December 31, 2011.
33) On January 1, 2010, Flight International, Incorporated, issued $300,000 face value, 5-year bonds with a stated rate of 8% at an effective rate of 10% to yield $277,255. Interest is paid annually on December 31. Flight International, Incorporated, uses the effective-interest method of amortization.
Prepare entries for the following transactions:
a.Issuance of the bonds on January 1, 2010.
b.Payment of interest and amortization of discount or premium on December 31, 2010.
34) On January 1, 2010, JetNew, issued $1,000,000 face value, 5-year bonds with a stated rate of 5% at an effective rate of 4% which brought in $1,044,915. Interest is paid semi-annually on July 1 and December 31. JetNew uses the effective-interest method of amortization.
Prepare entries for the following transactions:
a.Issuance of the bonds on January 1, 2010.
b.Payment of interest and amortization of discount or premium on July1, 2010.
35) On January 1, 2010, JetNew, issued $1,000,000 face value, 5-year bonds with a stated rate of 5% at an effective rate of 4% which brought in $1,044,915. Interest is paid semi-annually on July 1 and December 31. JetNew uses the effective-interest method of amortization.
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