Chapter 10: Q13DQ (page 473)
Question: What obligation does an entrepreneur (owner) have to investors that purchase bonds to finance the business
Answer
Interest payment and principle payment.
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Paulson Company issues 6%, four-year bonds, on December 31, 2017, with a par value of \(200,000 and semiannual interest payments. Use the following bond amortization table and prepare journal entries to record
(a) the issuance of bonds on December 31, 2017;
(b) the first interest payment on June 30, 2018; and
(c) the second interest payment on December 31, 2018
Semiannual Period-End | Unamortized Discount | Carrying Value |
12/31/2017 | \) 13,466 | \( 186,534 |
6/30/2018 | \) 11,782 | \( 188,218 |
12/31/2018 | \) 10,098 | $ 189,902 |
Gomez issues \(240,000 of 6%, 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at \)198,494, and their market rate is 8% at the issue date.
Required
Question: Refer to the statements for Samsung in Appendix A. By what amount did Samsung’s long-term borrowings increase or decrease in 2015?
Question: Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semi annual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87½. Prepare the journal entry for the issuance of the bonds. Assume the bonds are issued for cash on January 1, 2017.
Your business associate mentions that she is considering investing in corporate bonds currently selling at a premium. She says that since the bonds are selling at a premium, they are highly valued, and her investment will yield more than the going rate of return for the risk involved. Reply with a memorandum to confirm or correct your associate’s interpretation of premium bonds.
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