CHALLENGE PROBLEM
This problem challenges you to apply your cumulative accounting knowledge to move a step beyond the material in the chapter.
On April 1, 20-1, Rebound Co. issued $300,000 of 10%, 10-year bonds, callable at 105 after three years, at face value. On April 1, 20-4, after completing three years of interest payments on the bonds, Rebound is considering calling the bonds and issuing $300,000 of new 8%, 10-year bonds at face value. The current market interest rate is only 8%, so Rebound thinks it might save money by taking this action.
REQUIRED
1. Compute the net savings to Rebound over the life of the original bond issue if it calls the old bonds and issues the new bonds.
2. Assuming Rebound calls the original bond issue, prepare the
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College Accounting, Chapters 1-27
- Current Attempt in Progress Shamrock Inc. issues $2,700,000 of 7% bonds due in 10 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 8%. Click here to view factor tables. What amount will Shamrock receive when it issues the bonds? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and final answer to 0 decimal places, e.g. 458,581.) Amount received by Shamrock when bonds were issued $arrow_forwardCurrent Attempt in Progress Ivanhoe Corporation issued $372,000 of 10-year bonds at a discount. Prior to maturity, when the bonds' carrying amount was $362,700, the company redeemed the bonds at 97. Prepare the entry to record the redemption of the bonds. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles Debit Credit eTextbook and Media List of Accounts Save for Later Attempts: 0 of 3 used Submit Answerarrow_forwardRequired information [The following information applies to the questions displayed below.] Dunphy Company issued $38,000 of 8.5%, 10-year bonds at par value on January 1. Interest is paid semiannually each June 30 and December 31. Analyze transactions by showing their effects on the accounting equation-specifically, identify the accounts and amounts (including + or -) for each transaction. Date January 1 June 30 Assets = Check my work Liabilities + +arrow_forward
- 3. On 1/1/21, Your Company issued $250,000 of 6% bonds, dated 1/1/21. The bonds pay interest annually on December 31st. The yield is 8%. They mature in three years on 12/31/23. The bonds were issued for $237,115. Be sure to show the date of each journal entry. The 'right' journal entry on the 'wrong' date is wrong. а. Prepare an amortization table Prepare thejournal entry for 1/1/21 Prepare thejournal entry for 12/31/21 b. с. Amortization table: CV 8% Interest Payment Amortization Discount CV 12/31/20 12/31/21 12/31/22 Journal entries: Debits Credits 1/1/21 12/31/21arrow_forwardView Policies Current Attempt in Progress Marigold Corporation issues $ 430,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Click here to view factor tables. Compute the issue price of the bonds. (Round present value factor calculations to 5 decimal places, e.g 1.25124 and the final answer to 0 decimal places eg, 58,971.) Issue price of the bonds %24arrow_forwardBonds Payable Goodway Corporation sold $100,000 worth of bonds to raise money for plant expansion. The bonds pay interest annually at 3.5% for 5 years. The market rate of interest for a similar instrument was 3%; therefore, the bonds sold for a premium at $102,290. Required: 1. Journalize the entry to record the sale of the bonds. (Select the account from the dropdown menu) Date Accounts and Explanations Debit Credit 2. Journalize the entry to record the first interest payment and bond premium amortization. (Select the account from the dropdown menu) Goodway uses the straightline…arrow_forward
- Financial Statement Impact On July 1, 2014 Botwin Company issues $1,000,000, 10%, bonds payable due in 10 years. Click here and use the slider to select the relevant interest rate to answer the following questions. 1.a. If the market rate of interest is 12%, what is the issue price of the bonds payable? b. If the market rate of interest is 12%, what is the discount on the bonds payable? c. If the market rate of interest is 12%, what is the carrying amount of the bonds payable on the date of issuance?arrow_forwardRequired information Skip to question [The following information applies to the questions displayed below.] Lemond Corporation is planning to issue bonds with a face value of $200,000 and a coupon rate of 10 percent. The bonds mature in three years and pay interest semiannually every June 30 and December 31. All the bonds were sold on January 1 of this year. Lemond uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 8.5 percent. (FV of S1, PV of S1. FVA of $1. and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required: 3. What bonds payable amount will Lemond report on this year's December 31 balance sheet? Note: Do not round your intermediate calculations. Round your final answers to nearest whole dollar amount.arrow_forwardSuperior Drive-Ins Ltd. borrowed money by issuing $4,500,000 of 6% bonds payable at 96.5 on July 1, 2018. The bonds are 10-year bonds and pay interest each January 1 and July 1. Requirements 1. How much cash did Superior receive when it issued the bonds payable? Journalize this transaction. 2. How much must Superior pay back at maturity? When is the maturity date? 3. How much cash interest will Superior pay each six months? 4. How much interest expense will Superior report each six months? Use the straight-line amortization method. Journalize the entries for the accrual of interest and amortization of discount on December 31, 2018, and the payment of interest on January 1, 2019.arrow_forward
- Preparing a Bond Amortization Table (Straight Line) Campton Company issued 5-year, 7.5% bonds with a total face value of $900,000 January 1 for $944,000. The bonds pay interest on June 30 and December 31 of each year. Required: 1. Prepare an amortization table. If an amount box does not require an entry, leave it blank and if the answer is zero, enter "0". Campton Company Amortization Table Cash Interest Premium on Payment Expense Bonds Payable (Credit) (Debit) Period At issue $ 6/30/X1 12/31/X1 6/30/X2 12/31/X2 6/30/X3 12/31/X3 6/30/X4 12/31/X4 6/30/X5 12/31/X5 (Debit) Premium on Bonds Payable Carrying Balance Value 2. Prepare the entries to recognize the interest payments made on June 30 and December 31 of Year 1. If an amount box does not require an entry, leave it blank. If an amount box does not require an entry, leave it blank. 20X1 June 30 20X1 Dec. 31 Record interest expense Record interest expense BB 88arrow_forwardFill in the Blank Question Î A company issues $100,000 of 5%, 10-year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If the bonds are sold at par value, the issuer records the sale with a debit to in the amount of $arrow_forwardPart 2: Solve the following problems in the space provided or an attached extra page. You may use a calculator or computer, but no cell phones. On May 1, 20xl Ben Corp. issue $110,000 of 8-year term bonds which were dated May 1, 20xl. The bonds pay interest semi-annually. The stated interest rate was 7% annually, and the bonds were issued to yield 6% annually. Required: 1.) Show that the semi-annual payment is $3,850. 2.) Show that the issue price of the bonds is $116,890. Use the present value tables distributed in class. 3.) Using the $116,890 value prepare an amortization schedule for the bonds through November 1, 20x3. 4.) Prepare journal entries for the bonds for May 1, 20xl, November 1, 20xl, December 31, 20xl, and Маy 1, 20х2. 5.) Prepare entries to retire the bonds on July 1, 20x3 at 103 plus accrued interest.arrow_forward
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,