An index-linked bond of £11,000 nominal was issued on 1st July 2016 and it was repaid at 114% on 1st July 2020. Interest on the bond was payable at each anniversary (i.e. in July of each year) at a rate of 5.1% per annum. An investor liable to income tax at a rate of 31% has purchased the bond at issue and held it to redemption. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. The value of the inflation indexes at various dates during the term of the loan were as follows: Inflation indexes for 2016-2020 2016 2017 2018 2019 2020 January 103.6 109.2 117 123.5 129.3 July 101.8 108.2 112.1 120.5 125.5 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 6.2% per annum from this investment.

An index-linked bond of £11,000 nominal was issued on 1st July 2016 and it was repaid at 114% on 1st July 2020. Interest on the bond was payable at each anniversary (i.e. in July of each year) at a rate of 5.1% per annum. An investor liable to income tax at a rate of 31% has purchased the bond at issue and held it to redemption. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. The value of the inflation indexes at various dates during the term of the loan were as follows: Inflation indexes for 2016-2020 2016 2017 2018 2019 2020 January 103.6 109.2 117 123.5 129.3 July 101.8 108.2 112.1 120.5 125.5 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 6.2% per annum from this investment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Domestic
On January 1, 2024, Cullumber Co. issued eight-year bonds with a face value of $5920000 and a stated interest rate of 4%, payable semiannually on June 30 and December 31. The bonds were sold to yield 6%. Table values are: Present value of 1 for 8 periods at 4% Present value of 1 for 8 periods at 6% Present value of 1 for 16 periods at 2% Present value of 1 for 16 periods at 3% Present value of annuity for 8 periods at 4% Present value of annuity for 8 periods at 6% Present value of annuity for 16 periods at 2% Present value of annuity for 16 periods at 3% The present value of the principal is O $4312424. O $4325685. O $3714267. O $3689166. 0.73069 0.62741 0.72845 0.62317 6.73274 6.20979 13.57771 12.56110
On January 1, 2020, XYZ Co. issued a bond with a $400,000 par (face) value. The bond is a 5-year bond and will mature on December 31, 2025. The bond has a contract rate of interest of 5% and interest is paid semi-annually on June 30 and December 31 of each year. On January 1, 2020, the market rate of interest for bonds was 6%. The issue price of the bond was $382,942. The journal entry to record issuance of the bond would be: Debit Credit Cash $382,942 Discount on B/P 17,058 Bonds Payable $400,000 prepare the journal entry to record the first interest payment on XYZ Co.'s bond on June 30, 2020 using the straight-line method. (Show your work in each step using the recommended approach.)
The following are two independent situations. 1. 2. Crane plc. redeemed £121,000 face value, 10% bonds on June 30, 2020, at 102. The carrying value of the bonds at the redemption date was £108,500. The bonds pay annual interest, and the interest payment due on June 30, 2020, has been made and recorded. For each independent situation above, prepare the appropriate journal entry for the redemption of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) 1. Tastove Inc. redeemed £155,000 face value, 11% bonds on June 30, 2020, at 96. The carrying value of the bonds at the redemption date was £157,650. The bonds pay annual interest, and the interest payment due on June 30, 2020, has been made and recorded. No. Account Titles and Explanation 2. Debit Credit NAR
Debond Corp. issues £1,000,000 worth of fi ve-year bonds, dated 1 January 2010, whenthe market interest rate on bonds of comparable risk and terms is 6 percent. Th e bondspay 5 percent interest annually on 31 December. What are the sales proceeds of thebonds when issued, and how is the issuance refl ected in the fi nancial statements?
On February 1, 2024, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $860,000. The bonds sold for $786,220 and mature on January 31, 2044 (20 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Strauss-Lombardi’s fiscal year ends December 31. Question: 1 to 4. Prepare the journal entries to record their issuance by Strauss-Lombardi on February 1, 2024, interest on July 31, 2024 (at the effective rate), adjusting entry to accrue interest on December 31, 2024 and interest on January 31, 2025. Note: Do not round intermediate calculations and round your final answers to the nearest whole dollar. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Terra Ccompany issued a $300,000, 7.50%, 10-year bond on June 1, 2015. Additional information on the bond follows: Bond Date: January 1, 2015 December 31, 2024 Maturity Date: Yield (Market) Rate: Interest Payment Date:: Terra's year end: Required: Round calculations to the nearest dollar a) Calculate the present value of the bond assuming that it had been issued on January 1, 2015. Show calculations/keystrokes. 8% Interest is paid annually on December 31 of each year September 30 b) Prepare a bond amortization table from January 1, 2015 until December 31, 2018. Show each annual interest payment. c) Calculate the total amount of cash received by Terra on June 1, 2015, reflecting the fact the bond was issued on June 1, 2015. Make the journal entry to record the bond issue on June 1, 2015.
On June 30, 2024, Single Computers issued 6% stated rate bonds with a face amount of $200 million. The bonds mature on June 30, 2039 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (3%) on June 30 and December 31, beginning on December 31, 2024. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. Determine the price of the bonds on June 30, 2024. 2. Calculate the interest expense Single reports in 2024 for these bonds using the effective interest method.