On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a contractual

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On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a contractual interest rate of "LIBOR plus 5.5%," which is reset annually on January 1of each year. The LIBOR rates on January 1, 2017, 2018, and 2019, were 6.5%, 7.0%, and 5.5%, respectively.

Required:

1. Prepare a journal entry to record the issuance of the bonds on January 1, 2017, at par. What was the effective (or market) interest rate when the bonds were issued?

2. Prepare a journal entry to record interest expense for 2017, 2018, and 2019. Assume that interest is paid annually on December 31.

3. What is the market value of the debt at December 31, 2019, assuming Nicks Corporation's credit risk has not changed?

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 Reporting and Analysis

ISBN: 978-1259722653

7th edition

Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer

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Question Posted: Apr 28, 2017 08:18 AM

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On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a contractual

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Requirement 1 Journal entry to record the issuance on January 1 2017 DR Cash 250000000 CR Bonds paya...View the full answer

Financial Reporting and Analysis

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