On June 1, 2016, Hamiota Inc. (Hamiota) issued a $250,000,000 bond with a 5 percent coupon rate and a maturity date of May 31, 2026. Interest will be paid annually on May 31. Hamiota's year-end is December 31. The appropriate interest rate for a bond of this type on June 1, 2016 was 4.5 percent.

a. What will the proceeds be from the bond issue?
b. Prepare the journal entry to record the issue of the bond on June 1, 2016.
c. Prepare an amortization schedule using the effective interest rate method for any premium or discount that arose from the issue of the bond.
d. Prepare the journal entry required to accrue the interest expense and accrued interest payable on December 31, 2016 and 2017.
e. Prepare the journal entry required to record the payment to investors on May 31, 2017 and 2018.
f. Prepare the journal entry required to record the retirement of the bond on maturity.
Include the interest expense and amortization of any bond premium or discount in the entry. Use the effective interest rate method.
g. On May 31, 2021, Hamiota was able to buy back all the outstanding bonds on the open market for $241,000,000. Prepare the journal entry required to record early retirement of the bond. Assume the entry to record the interest expense to May 31, 2021 has already been recorded.
h. Do you think that the decision to buy back the bonds early was a good one? Explain.

  • CreatedFebruary 26, 2015
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