On June 30, 2015, Imperial Inc. purchased $500,000 of Acme Corp. 5% bonds at a price to
Question:
On June 30, 2015, Imperial Inc. purchased $500,000 of Acme Corp. 5% bonds at a price to yield a market interest rate of 6%. The bonds pay interest semi-annually on June 30 and December 31, and mature on June 30, 2025. Imperial plans to hold this investment until it matures. At December 31, 2015, which is the year end for both companies, the bonds were trading at 93 (this means 93% of maturity value).
Instructions
(a) Calculate the present value (issue price) of the bonds on June 30, 2015.
(b) For Imperial, the investor, record
1. The purchase of the bonds on June 30, 2015,
2. The receipt of interest on December 31, 2015, and
3. The receipt of interest on June 30, 2016.
(c) For Acme, the investee (issuer), record
1. The issue of the bonds on June 30, 2015,
2. The payment of interest on December 31, 2015, and
3. The payment of interest on June 30, 2016.
(d) Explain how your responses to parts (a) and (b) would differ if Imperial classified the bond investment as a trading investment instead of one that would be held until maturity?
MaturityMaturity 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...
Step by Step Answer:
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine