On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond
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On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future.
(iv) Assume ME’s Times Interest Earned (TIE) ratio for the financial year ended 31 December 2017 is 5. What will its TIE ratio likely be for the next three years? Explain.
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- Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future. (v) Because of a substantial increase in the market rate of interest, ME purchased all the bonds on the open market at par on 30 June 2018. Prepare the journal entry to record the retirement of the bonds on 30 June 2018. Ignore the journal entry for the interest payment on 30 June 2018.Debond Corp. issues £1,000,000 worth of fi ve-year bonds, dated 1 January 2010, whenthe market interest rate on bonds of comparable risk and terms is 6 percent. Th e bondspay 5 percent interest annually on 31 December. What are the sales proceeds of thebonds when issued, and how is the issuance refl ected in the fi nancial statements?
- On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future. (i) Prepare an amortization schedule that covers the duration of the bond till 30 June 2018, using the effective interest rate method. Show all the necessary workings and round off your answers to the nearest dollar. (ii) Prepare the necessary journal entries to record the cash interest payment on 31 December 2017. (iii) “ME’s cash payment for interest decreases over the duration of the bond”. Comment on this statement. (iv)…On January 1, 2016, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000. The Cortland bonds have a stated interest rate of 6%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: January 1, 2016 7.0% June 30, 2016 8.0% December 31, 2016 9.0% Required: 1. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2016 (ignoring brokerage fees), and prepare a journal entry to record the purchase. 2. Prepare all appropriate journal entries related to the bond investment during 2016, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds. 3. Prepare all appropriate journal entries related to the bond investment during 2016, assuming that Ithaca chose the fair value option when the bonds were…On January 1, 2017, Ashlock Chemical issued RM4,000,000, 10%, 10-year bonds at RM4,543,627. This price resulted in an 8% effective interest rate on the bonds. Ashlock uses the effective-interest method to amortize bond premium or discount. The bond pays annual interest on each January 1. Instructions (a) Prepare the journal entries to record the following transactions 1. The issuance of the bonds on January 1, 2017 2. Accrual of interest and amortization of the premium on December 31, 2017 3. The payment of interest on January 1, 2018. 4. Accrual of interest and amortization of the premium on December 31, 2018 (b) Show the proper non-current liability statement of financial position presentation for the bond liability at December 31, 2018.
- Prepare the journal entry for the issuance of these bonds. Assume the bonds are issued for cash on January 1, 2017. Garcia Company issues 11.00%, 15-year bonds with a par value of $350,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 9.00%, which implies a selling price of 118 1/4.On 1/6/2017, EB issued a subscription bond worth 400,000 dinars at an interest rate of 8% annually, and for a period of 10 years (that is, the bond is returned after this period), while the market interest rate on the date of issuance was 10%. This interest is paid annually on 31/5/ of each year. The company also uses the real interest method to amortize the issue difference. Required: Prepare journal entries to record each of the following: Issuance of bonds. Interest is paid and accrued for the first four years. Amortization schedule. Proof of entries in the investor's books until May 31, 2018.On January 1, 2017, Surreal Manufacturing issued 780 bonds, each with a face value of $1,000, a stated interest rate of 3.75 percent paid annually on December 31, and a maturity date of December 31, 2019. On the issue date, the market interest rate was 4.00 percent, so the total proceeds from the bond issue were $774,591. Surreal uses the effective-interest bond amortization method.Required:1. Prepare a bond amortization schedule. (Round your final answers to the nearest whole dollar.) 2. Prepare the journal entry to record the bond issue. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 3. Prepare the journal entries to record the interest payments on December 31, 2017, and 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to the nearest whole dollar.) 4. Prepare the journal entry to record the interest and face value…
- On January 1, 2017, Barclays bank issued 8 %, 5-year bonds with a face amount of K750,000 to Puma Zambia Interest is payable annually at the beginning of the year. The bond is issued for an effective interest rate of 10%. In addition to the purchase price Puma paid the broker K 30,000 to facilitate the purchase of this bond. Requireda) Calculate the value of the bond and prepare the entries to record the issuance of the bonds in the books of Barclays and Pumab) Prepare the entries to record the first annual interest accrual and the payment assuming that the company uses effective-interest amortization. In both Barclays and Puma c) At the end of year 3 Barclays decided to buy back this bond at a cost of K600, 000.Calculate the gain on loss on this transaction and show the double entry also advice if the bond should be bought back. In both Barclays and PumaMost Solutions, Inc., issued 10% bonds, dated January 1, with a face amount of $640 million on January 1, 2016. The bonds mature in 2026 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest expense is recorded at the effective interest rate. Interest is paid semiannually on June 30 and December 31. Most recorded the sale as follows: January 1, 2016 Cash (price) ............................................................................................. 566,589,440 Discount on bonds (difference) ............................................................... 73,410,560 Bonds payable (face amount) .............................................................. 640,000,000 Required: What would be the amount(s) related to the bonds that Most would report in its statement of cash flows for the year ended December 31, 2016?On January 1, 2018, Oman Cables Industry (SAOG) issued 12% bonds dated January 1, 2018, with a principal amount of OR20 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. Note: to determine the price of bonds, you should use tables (2) present value of $1 and (4) present value of an ordinary annuity of$1 to find the appropriate P.V. factors to calculate the interest and principal. The appropriate journal entry to record interest on June 30, 2018, using the effective interest method is: Select one: a. Interest expense 1,124,623 Premium on bonds payable 75,377 Cash 1,200,000 O b. Interest expense 1,102,009 Premium on bonds payable 97,991 Cash 1,200,00 c. Interest expense 1,275,377 Discount on bonds payable 75,377 Cash 1,200,000 d. Interest expense 1,128,391 Premium on bonds payable 71,609 Cash 1,200,000