When market interest rates were 5%, three companies issued bonds on January 1, 2015. Each company has
Question:
When market interest rates were 5%, three companies issued bonds on January 1, 2015. Each company has a December 31 year end and each company issued bonds with a face value of $200,000 that pay interest annually on December 31. Delta Limited sold its bonds at 100 and offered a coupon interest rate of 5%, while Founders Corp. sold its bonds at 94 and offered a coupon interest rate of 3%. Grand Inc. sold its bonds at 108 and offered a 7% coupon interest rate.
Instructions
(a) Record the issue of the bonds by each company on January 1, 2015.
(b) Prepare the entry that each company would record for the payment of interest on December 31, 2015.
(c) Explain why some of the companies are not recording an interest expense on the bonds that is equal to the interest that was actually paid.
(d) Determine the balance in each company's Bonds Payable account on December 31, 2015.
CouponA coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
Step by Step Answer:
a Delta Limited issued at par or 100 with coupon rate 5 2015 Jan 1 Cash 200000 Bonds Payable 200000 b Dec 31 Interest Expense 200000 5 10000 Cash 1000...View the full 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
