When market interest rates were 6%, three companies issued bonds on January 1, 2018. Each company has

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When market interest rates were 6%, three companies issued bonds on January 1, 2018. Each company has a December 31 year end and each company issued bonds with a face value of $100,000 that pay interest annually on December 31. Able Limited sold its bonds at 100 and offered a coupon interest rate of 6%, while Beta Corp. sold its bonds at 94 and offered a coupon interest rate of 4%, and Charles Inc. sold its bonds at 105 and offered a 7% coupon interest rate.
Instructions
(a) Record the issue of the bonds by each company on January 1, 2018.
(b) Prepare the entry that each company would record for the payment of interest on December 31, 2018.
(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, 2018.
Coupon
A 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...
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Financial Accounting Tools for Business Decision Making

ISBN: 978-1119368458

7th Canadian edition

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine

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