Question: Assume that on April 1, 2014, Roland, Corp. issues 8%, 10-year bonds payable with a maturity value of $400,000. The bonds pay interest on March

Assume that on April 1, 2014, Roland, Corp. issues 8%, 10-year bonds payable with a maturity value of $400,000. The bonds pay interest on March 31 and September 30. Roland’s fiscal year-end is December 31.

Requirements

1. If the market interest rate is 7 1/2% when Roland, Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

2. If the market interest rate is 9% when Roland, Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain.

3. Assume that the issue price of the bonds is $404,000. Journalize the following bonds payable transactions, first using the straight-line method and second using the effective interest method (Note: you will need a financial calculator to calculate the market rate for the effective interest method):

a. Issuance of the bonds on April 1, 2014.

b. Payment of interest and amortization of premium on September 30, 2014.

c. Accrual of interest and amortization of premium on December 31, 2014.

d. Payment of interest and amortization of premium on March 31, 2015.

Step by Step Solution

★★★★★

3.41 Rating (170 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Req 1 The 8 bonds issued when the market interest rate is 712 will be priced at a premium Because they pay interest at a rate higher than the market r... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

475-B-A-L (5391).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

TQ 2.1: What isthe elements of standing and what three things must a plaintiff show in order to have it? TQ 2.3: In MA v. EPA , how did the Court rule in regards to the plaintiff's standing?How did...

The company has outstanding bonds payable with a total face value of $100,000. On July 1, the company redeemed the bonds by purchasing them on the open market for a total of $102,700. Make the...

The company has bonds payable with a total face value of $100,000 and a carrying value of $103,000. In addition, unpaid interest on the bonds has been accrued in the amount of $6,000. The lender has...

Bonds payable with a maturity value of $200,000 are callable at 102.50. Their market price is 101.25. If you are the issuer of these bonds, how much will you pay to retire them before maturity?

Assume that on April 1, 2010, Roland, Corp., issues 8%, 10-year bonds payable with a maturity value of $400,000. The bonds pay interest on March 31 and September 30, and Roland amortizes any premium...

Assume that on April 1, 2015, Roland, Corp. issues 8%, 10-year bonds payable with a maturity value of $400,000. The bonds pay interest on March 31 and September 30. Roland's fiscal year-end is...

PROBLEMC2o PoiNTS Assume that on April 1, 2008, Roland Corp. issues 8%, 10-year bonds payable with a maturity value of $400,000. The bonds pay interest on March 31 and September 30, and Roland...

On April 1, 2014, Pettington Corp. issues 7-percent, 10-year bonds payable with a maturity value of $3,000,000. The bonds pay interest on March 31 and September 30, and Pettington Corp. amortizes...

Analyzing bond terms and accounting for bonds (Learning Objective 5) 2025 min. Assume that on April 1, 2014, Pacific, Corp., issues 5%, 10-year bonds payable with a maturity value of $900,000. The...

Assume that on April 1, 2012, Pacific, Corp., issues 5%, 10-year bonds payable with a maturity value of $900,000. The bonds pay interest on March 31 and September 30, and Pacific amortizes any...

Assume that on April 1, 2016,Washington, Corp., issues 7 percent, 10-year bonds payable with a maturity value of $1,000,000.The bonds pay interest on March 31 and September 30, and Washington...

Consider some of the more prominent sporting goods that are fabricated from composite materials, such as skis, tennis rackets, golf club shafts, and body panels for racing cars. For two products,...

Equipment Inc. agreed to financial terms of $600 payments at the end of every three months for five years. Interest is 7.6% compounded quarterly. (a) How much has to be deposited at the beginning of...

Find the limit of the rational function ( a ) as x and ( b ) as x - . Write or - where appropriate. f ( x ) = 4 x 8 6 x 2 - 1 2 x 7 - 4 x 9 a . lim x ( 4 x 8 6 x 2 - 1 2 x 7 - 4 x 9 ) = ( Simplify...

From the same survey as in Exercise 9, 294 of the 409 respondents who reported earning less than $30,000 per year said they were social networking users. At the other end of the income scale, 333 of...

Midwest Services, Inc., operates several restaurant chains throughout the Midwest. One restaurant chain has experienced sharply declining profits. The companys management has decided to test the...

Brads BBQ reported sales of $ 735,000 and net income of $ 28,000 in its 2015 income statement. Brads also reported total assets of $ 496,000 in its 2015 balance sheet and $ 389,000 in its 2014...

Brad's BBQ reported sales of $735,000 and net income of $28,000. Brad's also reported ending total assets of $496,000 and beginning total assets of $389,000. Required: Calculate the return on assets,...

Abbott Landscaping purchased a tractor at a cost of $ 42,000 and sold it three years later for $ 21,600. Abbott recorded depreciation using the straight- line method, a five- year service life, and a...

What are the different modes of security against bank loan? Hypothecation Pledge Mortgage Lien

Jay Bauer is uncertain about the control features of a bank account. Explain the control benefits of (a) A checking account and (b) A bank statement.

The following reconciling items are applicable to the bank reconciliation for Gratz Co. Indicate how each item should be shown on a bank reconciliation (a) Outstanding checks. (b) Bank debit...

Problem 21-12 (Working Capital Cash Flow Cycle) 1 Question 8 of 12 ) Check My Work eBook Video Working Capital Cash Flow Cycle Strickler Technology is considering changes in its working capital...

Suppose Bank of America would like to investigate if the credit score and income level of an individual are independent of one another. Bank of America selected a random sample of 400 adults and...

The Alfredo Brothers paid $123,600 in interest over the year, along with $88,000 in dividends. The company issued $130,000 of stock and $50,000 of new debt. During the year, the company reduced the...