The state of Illinois issues zero coupon bonds as part of its Illinois College Savings Bonds series.
Question:
1. Compute the market interest rates for the 11-year zero coupon bond.
2. Is this higher or lower than the rate on the 3-year bonds? You can answer this question by asking what the price of the 3-year bond would be at exactly the 11-year rate and comparing that number with the actual sales price.
3. Prepare the state’s journal entry for one 11-year bond at issuance. Do not use a discount account.
4. Prepare the state’s journal entry for recording interest expense on the 11-year bonds for the first 6 months of 2013. Round to the nearest dollar.
5. Compute the liability that Illinois would show on its balance sheet for this bond on June 30, 2013.
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Coupon
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... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Related Book For
Introduction to Financial Accounting
ISBN: 978-0133251036
11th edition
Authors: Charles Horngren, Gary Sundem, John Elliott, Donna Philbrick
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