A company has outstanding $660,000 of 8% bonds on which the interest is payable annually on 31 December. The debt is due for redemption at par on 1 January 20X6. The market price of the bonds at 28 December 20X2 was $95. Ignoring any question of personal taxation, what do you estimate to be the current cost of debt?

A company has outstanding $660,000 of 8% bonds on which the interest is payable annually on 31 December. The debt is due for redemption at par on 1 January 20X6. The market price of the bonds at 28 December 20X2 was $95. Ignoring any question of personal taxation, what do you estimate to be the current cost of debt?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 13Q: A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market...

See similar textbooks

Similar questions

A company sold a $1,000,000 issue of bonds with a 15-year life, paying 4% interest per year. The bonds were sold at par value. If the company paid a selling fee of $50,000 and has an annual expense of $70,256 for mailing and record keeping, what is the true rate of interest that the company is paying for the borrowed money?
On January 2, Year 1, Kampai Sushi Bar sold $800,000 of bonds for $785,000. The bonds will mature in 10 years and pay interest annually on December 31. The company properly recorded the payment of interest and the amortization of the discount using the effective interest method. What will be the carrying value of the bonds at the end of Year 1? a.$800,000 b.less than $785,000 c.$785,000 d.greater than $785,000, but less than $800,000
The Cidros reported the following information on long-term debt: Current year Previous year Total long-term debts $14,578 millions $18,564 millions Minus the current portion (1,290) millions (1,540) millions Long-term debts 13,288 millions 17,024 millions Determine how much total current liabilities changed between the previous year and the current year as a result of the long-term debt portion. Explain your answer.Indicates the balance of the debt the following year if The Cidros does not acquire another long-term debt in the next few years.
On April 1, 2021, the Electronic Superstore borrows $21 million of which $7 million is due in 2022. Show how the company would report the $21 million debt on its December 31, 2021 balance sheet. (Enter your answers in dollars not in millions. For example, $7,000,000 rather than $7 million.) Electronic Superstore Partial Balance sheet December 31st 2021 Current liabilities: Long-term liabilities: Total liabilities
9. On August 20, 2024, Madak Co. decides to invest excess cash of $2,900 by purchasing Wolf, Inc. bonds. At year-end, December 31, 2024, the market price of the bonds was $2,600. The K- investment is categorized as available-for-sale debt Joumalize the adjusting entry needed at December 31, 2024. (Record debits first, then credits. Select the explanation on the last line of the journal entry table) Date 2024 Dec 31 Accounts and Explanation Debit Co Credit
Alyssa Company issued P 10,000,000 bonds on January 1, 2021. The bonds pay interest annually at 10% on the outstanding bond balance. The face value of the bonds is payable in installments of P 2,000,000 every December 31 starting December 31, 2021. The bonds were sold to yield 14%. Do not round off your present value factors How much cash was paid on December 31, 2021? What is the interest expense for the year 2021? What is the non-current portion of the liability on December 31, 2021? How much cash was paid on December 31, 2022? How much cash was paid on December 31, 2023? What is the current portion of the liability on December 31, 2023? What is the non-current portion of the liability on December 31, 2023? How much cash was paid on December 31, 2024? How much cash was paid on December 31, 2025?
On January 1, 20X1, Palko Corp. issued ten (10) year bonds with a face value of $600,000 and a stated (or face) interest rate of 8%, compounded and payable semiannually on June 30 and December 31, beginning June 30, 20X1. The bonds mature 10 years from their issuance date. At the time of the issue, the market rate for bonds of similar risk and maturity is 6%, compounded semi-annually. Question: Rounded to the nearest whole dollar, what should be the bonds' issue price? Do not use currency symbols, commas, or decimal points in your response. Answer: $
On January 1, 2021, the company issued $1,800,000, 6% bonds with a 10-year maturity. The bonds were issued to investors that require an effective interest rate of 9%. The accountant did NOT record the issuance of these bonds. Interest is paid annually and the accountant did NOT record the interest payment transaction. The effective interest method is used to amortize any premium or discount. NOTE – round calculations to nearest dollar. In the Excel spreadsheet, see the tab labelled “Bonds Payable – Series 2” to make any calculations, including an amortization schedule, to support journal entries.
Red Corporation had $1,750,000 in total liabilities and $3,000,000 in total assets as of December 31, 2020. Of Red's total liabilities, $600,000 is long-term. Required: Calculate Red's debt to assets ratio and its long-term debt to equity ratio. Round your answers to four decimal places, if required. Debt to Total Assets fill in the blank 1 Long-Term Debt to Total Equity fill in the blank 2
The Smart Company sold $500,000 of 8 percent, 20-year bonds on April 1, 2011, at 105. The semiannual interest payment dates are March 31 and September 30. The market interest rate is 7.5 percent. The company's fiscal year ends September 30. Use the effective interest method to calculate the amortization. With regard to the bond interest payment on September 30, 2011: How much is interest expense?
Consider the following liabilities of Future Brands, Inc., at December 31, 2016, the company’s fiscal year-end. Should they be reported as current liabilities or long-term liabilities? 1. $77 million of 8% notes are due on May 31, 2020. The notes are callable by the company’s bank, beginning March 1, 2017. 2. $102 million of 8% notes are due on May 31, 2021. A debt covenant requires Future to maintain a current ratio (ratio of current assets to current liabilities) of at least 2 to 1. Future is in violation of this requirement but has obtained a waiver from the bank until May 2017, since both companies feel Future will correct the situation during the first half of 2017.
On January 1, a company issued 5%, 10-year bonds with a face amount of $60 million for $55,537,005 to yield 6%. Interest is paid semiannually. What was the straight-line interest expense on the December 31 annual income statement? (Enter your answer in whole dollars. Round your intermediate calculations to the nearest dollar amount.)