On January 1, 2017, Glover Corporation issued $2,400,000 of 5-year, 8% bonds at 95. The bonds pay

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On January 1, 2017, Glover Corporation issued $2,400,000 of 5-year, 8% bonds at 95. The bonds pay interest annually on January 1. By January 1, 2019, the market rate of interest for bonds of risk similar to those of Glover Corporation had risen. As a result, the market value of these bonds was $2,000,000 on January 1, 2019-below their carrying value. Joanna Glover, 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, 11% 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 Glover Corporation 5-year bonds on January 1, 2019? (Assume straight-line amortization.)
(b) Prepare the journal entry to redeem the 5-year bonds on January 1, 2019. 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...
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Financial Accounting

ISBN: 978-1119305736

10th edition

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

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