May 1, 2003 Net Book Value is the initial proceeds of the bond issuance, net of...

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May 1, 2003 Net Book Value is the initial proceeds of the bond issuance, net of costs. The face value of this debt is $360,000; the discount is $4,723.20; the coupon rate is 8.125% and the effective rate (including fees) is 8.3803%. Interest Payment is the face value of the bond times the coupon rate of the bond. Interest Expense equals opening book value of the debt times the effective interest rate. The difference between the interest payment and interest expense is the amortization of the bond discount. This is equivalent to saying that interest expense equals the interest paid plus the amortization of the bond discount. Amortizing the discount increases the net book value of the bond. Prepare the journal entry that Rite Aid must have recorded February 28, 2004 to accrue interest expense on these notes. iv. V. Based on your answer to part iv. what is the book value of the notes at February 28, 2004? Your answer to part v. will be different from the amount that Rite Aid reported because the company used the straight line method to amortize the discount on these notes instead of the effective interest rate method. Use the guidance that follows to complete the following table using the straight line method to amortize the bond discount. Use the last column in the table to record the interest rate each year. Under this method, does Rite Aid report the same interest rate on these notes each year? vi. May 1, 2003 Net Book Value is the initial proceeds of the bond issuance, net of costs. The face value of this debt is $360,000; the discount is $4,723.20; the coupon rate is 8.125% and the effective rate (including fees) is 8.3803%. Interest Payment is the face value of the bond times the coupon rate of the bond. Interest Expense equals opening book value of the debt times the effective interest rate. The difference between the interest payment and interest expense is the amortization of the bond discount. This is equivalent to saying that interest expense equals the interest paid plus the amortization of the bond discount. Amortizing the discount increases the net book value of the bond. Prepare the journal entry that Rite Aid must have recorded February 28, 2004 to accrue interest expense on these notes. iv. V. Based on your answer to part iv. what is the book value of the notes at February 28, 2004? Your answer to part v. will be different from the amount that Rite Aid reported because the company used the straight line method to amortize the discount on these notes instead of the effective interest rate method. Use the guidance that follows to complete the following table using the straight line method to amortize the bond discount. Use the last column in the table to record the interest rate each year. Under this method, does Rite Aid report the same interest rate on these notes each year? vi.

Answer rating: 100% (QA)

iv Journal Entry Date Account Title Debit Credit May 1 2003 Cash 3552768 Discount on bon... View the full answer