# On January 1, 2012, Fleming Corporation issued \$2,400,000 of 5-year, 7% bonds at 96; the bonds pay interest semiannually on

## Question:

On January 1, 2012, Fleming Corporation issued \$2,400,000 of 5-year, 7% bonds at 96; the bonds pay interest semiannually on July 1 and January 1. By January 1, 2014, the market rate of interest for bonds of risk similar to those of Fleming Corporation had risen. As a result, the market value of these bonds was \$2,000,000 on January 1, 2014-below their carrying value. Debra Fleming, president of the company, suggests repurchasing all of these bonds in the open market at the \$2,000,000 price. To do so the company will have to issue \$2,000,000 (face value) of new 10-year 10% bonds at par. The president asks you, as controller, "What is the feasibility of my proposed repurchase plan?"

Instructions
With the class divided into groups, answer the following.
(a) What is the carrying value of the outstanding Fleming Corporation 5-year bonds on January 1, 2014? (Assume straight-line amortization.)
(b) Prepare the journal entry to retire the 5-year bonds on January 1, 2014. Prepare the journal entry to issue the new 10-year bonds.
(c) Prepare a short memo to the president in response to her request for advice. List the economic factors that you believe should be considered for her repurchase proposal.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

## This problem has been solved!

Related Book For

## Financial and managerial accounting

ISBN: 978-1118016114

1st edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

Question Details
Chapter # 10
Section: FINANCIAL REPORTING AND ANALYSIS
Problem: 4
View Solution