Heineken N.V. reports the following information for its Loans and Borrowings as
ID: 2425621 • Letter: H
Question
Heineken N.V. reports the following information for its Loans and Borrowings as of December 31, 2010, including proceeds and repayments for the year ended December 31, 2010 (euros in millions).
Prepare Heineken’s journal entry to record its cash proceeds from issuances of its loans and borrowings for 2010. Assume that the par value of these issuances is €2,000. (Enter your answers in millions.)
Record the cash proceeds from issuances of loans and borrowings for 2010. Assume that the par value of these issuances is euro 2,000.
Prepare Heineken’s journal entry to record its cash repayments of its loans and borrowings for 2010. Assume that the par value of these issuances is €3,000, and the premium on them is €32. (Enter your answers in millions.)
Record the cash repayments of loans and borrowings for 2010. Assume that the par value of these issuances is euro 3,000 and premium on them is euro 32.
Compute the discount or premium on its loans and borrowings as of December 31, 2010, assuming that the par value of these liabilities is €8,000. (Enter your answer in millions.)
Given the facts in part 3 and viewing the entirety of loans and borrowings as one issuance, was the contract rate on these loans and borrowings higher or lower than the market rate at the time of issuance? (Assume that Heineken’s credit rating has remained the same.)
Heineken N.V. reports the following information for its Loans and Borrowings as of December 31, 2010, including proceeds and repayments for the year ended December 31, 2010 (euros in millions).
Explanation / Answer
1a.
Date
Account Titles and Explanation
Debit
Credit
xx/xx/xxxx
Cash A/c Dr.
€ 1,920
Discount on Loans and borrowings A/c Dr.
€ 80
To Loans and Borrowings A/c
€ 2,000
(Loans issued at a discount)
1b. Loan premium is amortized over the period of the loan and Interest on loan is adjusted for this premium during the period of the loan. As the Interest rate and period of the loan is not available, we will be recording only for the repayment of the loan. The entry in 2010 will be as follows:
Date
Account Titles and Explanation
Debit
Credit
xx/xx/xxxx
Loans and Borrowings A/c Dr.
€ 3,000
To Cash A/c
€ 3,000
(Repayment of loan)
Every year for interest and premium there will be another entry like.
Loan Interest A/c Dr.
Loan Premium A/c Dr.
To Cash A/c
1c. The loans and borrowing as of December 31, 2010 is € 8,078. If the par value of these loans are € 8,000, that means the loans are borrowed at a higher rate or premium. So the premium on these loans and borrowings are € 8,078 - € 8,000 = € 78.
1d. If the loans are taken as one issuance, then the contract rate on these loans and borrowings HIGHER than the market rate at the time of issuance.
Date
Account Titles and Explanation
Debit
Credit
xx/xx/xxxx
Cash A/c Dr.
€ 1,920
Discount on Loans and borrowings A/c Dr.
€ 80
To Loans and Borrowings A/c
€ 2,000
(Loans issued at a discount)
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