The following information appeared in the 2017 annual report of Rumours, Inc.: Long-Term Debt Rumours, Inc. issued
Question:
The following information appeared in the 2017 annual report of Rumours, Inc.:
Long-Term Debt
Rumours, Inc. issued $10 million, 10% coupon bonds on January 1, 2014, due on December 31, 2018. The prevailing market interest rate on January 1, 2014, was 12%, and the bonds pay interest on June 30 and December 31 of each year.
On January 1, 2015, Rumours issued $10 million, 10% coupon bonds due on December 31, 2019. The prevailing market interest rate on January 1, 2015, was 8%, and the bonds pay interest on June 30 and December 31 of each year.
Required:
1. See the following (incomplete) table for each bond's carrying value. Calculate the missing values.
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2. How much interest expense did Rumours record in 2017 on the bonds due in 2018?
3. How much interest expense did Rumours record in 2017 on the bonds due in 2019?
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
Step by Step Answer:
Requirement 1 The carrying values of both bonds in each of the two years presented is simply equal to the present value of the principal and interest payments discounted over the remaining life of the ...View the full answer
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
