Dygat Corporation Jus $10,000,000 of 10.5 percent, 20 year bonds, 20-years bonds

Question

Dygat Corporation Jus $10,000,000 of 10.5 percent, 20 year bonds, 20-years bonds dated June 1, 2010 with interest payment dates of May 31 and November 30. The company's fiscal year ends November 30. It uses the effective interest methods amortize bond premiums or discounts. Assume the bonds arc issued at 103 on June 1 to yield an effective interest rare of 10.1 percent. Prepare entries in journal form for june 1,2010, November 30, 2010, and May 31, 2011. (Round amounts to the nearest dollar.) Assume the bonds arc issued at 97 on June 1 to yield an effective interests: of 10.9 percent. Prepare entries in journal form for June 1, 2010, November 30, 2010, and May 31, 2011. (Round amounts to the nearest dollar. Explain the role that market interest rates play in causing a premium in requirement 1 and a discount in requirement 2.

Explanation / Answer

1 1 Bond issue price                       10,300,000 2 Bond face value                       10,000,000 3 Bond Premium                             300,000 4 Interest payable at market rate                         1,010,000 5 Market rate interest in half year                             505,000 6 Interest per annum as per bond rate                         1,050,000 7 Interest in half year                             525,000 8 Amortization in Half year                               20,000 JV entry Nov 30.2010 Account Dr $ Cr$ Interest payable on Bond          525,000 Bond Premium                               20,000 Interest Expense                             505,000 2 1 Bond issue price                         9,700,000 2 Bond face value                       10,000,000 3 Bond Premium                           (300,000) 4 Interest payable at market rate                         1,090,000 5 Market rate interest in half year                             545,000 6 Interest per annum as per bond rate                         1,050,000 7 Interest in half year                             525,000 8 Amortization in Half year                               20,000 JV entry Nov 30.2010 Account Dr $ Cr$ Interest payable on Bond          525,000 Bond Discount             20,000 Interest Expense                             545,000 3 when bonds are issues at an interest rate which is more than the market interest rate, the bonds are sold at premium in the hope of better return. As happened in case 1 On the other hand when theMarket interest rate is more than the bond rate, the bond is sold at discount as the earning is less than market as happened in case 2.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.