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MGAC02H3 Study Guide - Effective Interest Rate, X.25, Qqq

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bronzeraven286
12 Dec 2014
School
UTSC
Department
Financial Accounting
Course
MGAC02H3
Professor
Ying Kong

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Document Summary

** [(,000,000 x . 98) + ,000] (b) under ifrs, the bond discount is amortized using the effective interest method. Using either a financial calculator or excel, the effective interest rate on the bonds is calculated as follows: * (,820,000 x 4. 7354% x 4/6) (,000,000 x 4. 5% x 4/6) Note: the discount is amortized from the date of acquisition only. Therefore, the discount amortization for the 4 months ended. October 1, 2014 is calculated using 4 months of interest at the yield rate and 4 months of cash interest. Exercise 16-7 (continued) (c) bonds payable (,500,000 ,622) 1,457,378. Unamortized bond discount the bonds (,000 x . 25) ,000 (d) under aspe, there are two options in accounting for hybrid/compound instruments. The first option is to measure the component that is most easily measurable first (often the debt component), and apply the residual to the other component. This option is consistent with the required treatment under ifrs.

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Related Questions

On August 1, 2017, Smith Inc. sold 1000, 6% bonds having a maturity value of $1,000 each. The bonds were sold at 98. Bond issue costs of $60,000 were incurred. The bonds are dated August 1, 2017 and mature on August 1, 2021, with interest payable on August 1 and February 1 of each year. Smith uses the amortized cost method with using the effective interest method to amortize the bond premium or discount. Smith prepares financial statements annually at December 31.

Required – Show ALL calculations

(a)The effective interest rate resulting from this transaction is 8.396%. Prove this using the RATE function in Excel

(b)Prepare the journal entry at the date of issue of the bonds.

(c)Prepare a bond amortization schedule for the bond through to its maturity date of August 1, 2021.

(d)Prepare all other required journal entries relating to the bond for all of 2017 and Feb 1, 2018.

(e)On Feb 2, 2019, the all bonds were repurchased from the Bondholders by Smith at the callable provision of 101 in the bond issuance and retired. Prepare the journal entry to record the repurchase and retirement of these bonds.

January 1, 2017: Mega Corporation issued 20 year, 9% bonds with a face value of 2,875,000. The bonds were solid yield 8%. Interest is payable semi-annually on January 1 and July 1.

1. What is the issue price of the bonds (please show all work) ?

2. Using EXCEL, prepare an amortization table for the entire bond term. (Table should be properly labeled and neatly presented. Amounts should have commas and be rounded to the nearest dollar)

3. Record the bond issuance on 1/1/17.

4. Assume the company prepares financial statements semi annually on June 30 and December 31. Prepare the apropriate adjusting entries for June 30, 2017 and December 31, 2017 for interest and for amortization of the discount or premium. Use effective method amortization

5. What accounts related to this bond would be shown on the 12/31/17 balance sheet. Show in the proper sections

Liabilities

Current Liabilities:

Long-term Liabilities:

The following transactions were completed by Hobson Inc., whosefiscal year is the calendar year:

2014
July 1. Issued $7,430,000 of five-year, 8%callable bonds dated July 1, 2014, at a market (effective) rate of9%, receiving cash of $7,136,042. Interest is payable semiannuallyon December 31 and June 30.
Oct. 1. Borrowed $310,000 as a 10-year, 7%installment note from Marble Bank. The note requires annualpayments of $44,137, with the first payment occurring on September30, 2015.
Dec. 31. Accrued $5,425 of interest on theinstallment note. The interest is payable on the date of the nextinstallment note payment.
Dec. 31. Paid the semiannual interest on thebonds. The bond discount is amortized annually in a separatejournal entry.
Dec. 31. Recorded bond discount amortizationof $29,396, which was determined using the straight-linemethod.
Dec. 31. Closed the interest expenseaccount.
2015
June 30. Paid the semiannual interest on thebonds.
Sept. 30. Paid the annual payment on thenote, which consisted of interest of $21,700 and principal of$22,437.
Dec. 31. Accrued $5,032 of interest on theinstallment note. The interest is payable on the date of the nextinstallment note payment.
Dec. 31. Paid the semiannual interest on thebonds. The bond discount is amortized annually in a separatejournal entry.
Dec. 31. Recorded bond discount amortizationof $58,792, which was determined using the straight-linemethod.
Dec. 31. Closed the interest expenseaccount.
2016
June 30. Recorded the redemption of thebonds, which were called at 98. The balance in the bond discountaccount is $176,374 after payment of interest and amortization ofdiscount have been recorded. (Record the redemption only.)
Sept. 30. Paid the second annual payment onthe note, which consisted of interest of $20,129 and principal of$24,008.

Required:

1. Journalize the entries to record theforegoing transactions. For compound transactions, if an amount boxdoes not require an entry, leave it blank or enter "0". Whenrequired, round your answers to the nearest dollar.