3. On January 1, 2016, Solo Inc. issued 1,500 of its 6%, $1,000 bonds at 98. Int
ID: 2499953 • Letter: 3
Question
3.
On January 1, 2016, Solo Inc. issued 1,500 of its 6%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2026. Solo paid $66,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:
a) $99,600
b) $102,600
c) $93,000
d) $90,000
8.
On February 1, 2015, Pat Weaver Inc. (PWI) issued 10%, $1,100,000 bonds for $1,400,000. PWI retired all of these bonds on January 1, 2016, at 103. Unamortized bond premium on that date was $113,300. How much gain or loss should be recognized on this bond retirement?
a) $110,000 gain
b) $80,300 gain
c) $0 gain
d) $140,000 gain
12.
Auerbach Inc. issued 6% bonds on October 1, 2016. The bonds have a maturity date of September 30, 2026 and a face value of $430 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2017. The effective interest rate established by the market was 6%.
Assuming that Auerbach issued the bonds for $371,562,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2017, rounded up to the nearest thousand?
a) $358,662,024
b) $373,524,480
c) $356,699,000
d) $386,424,000
On January 1, 2016, Solo Inc. issued 1,500 of its 6%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2026. Solo paid $66,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:
a) $99,600
b) $102,600
c) $93,000
d) $90,000
8.
On February 1, 2015, Pat Weaver Inc. (PWI) issued 10%, $1,100,000 bonds for $1,400,000. PWI retired all of these bonds on January 1, 2016, at 103. Unamortized bond premium on that date was $113,300. How much gain or loss should be recognized on this bond retirement?
a) $110,000 gain
b) $80,300 gain
c) $0 gain
d) $140,000 gain
12.
Auerbach Inc. issued 6% bonds on October 1, 2016. The bonds have a maturity date of September 30, 2026 and a face value of $430 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2017. The effective interest rate established by the market was 6%.
Assuming that Auerbach issued the bonds for $371,562,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2017, rounded up to the nearest thousand?
a) $358,662,024
b) $373,524,480
c) $356,699,000
d) $386,424,000
Explanation / Answer
3 Effective Interest Rate=6.275 As per Table Below 0.940955 90000 84685.956 0.885396 90000 79685.68 0.833118 90000 74980.644 0.783927 90000 70553.417 0.73764 90000 66387.596 0.694086 90000 62467.745 0.653104 90000 58779.341 0.614541 90000 55308.719 0.578256 90000 52043.02 0.544113 90000 48970.143 0.513314 816169.05 Total PV @6.275 1470031.3 Interest Expense=Carrying Amount*Effective Rate 92242.5 93000(approx) 8 Cost of the Bonds 1100000 Less: Redeemed Value -1133000 Net Loss -33000 Unamortised PremiuM 113300 Net Gain 80300 12 Interest Expense=Carrying Amount*effective Interest Rate 11146860 Interest to be paid=Book Value*Coupon Rate 13500000 Book Value of Bond 371652000 Amortised Discount 2353140 Total Value of Bond 374005140
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