Burke's Boots makes custom leather boots with sales worldwide. The popular company went public five years ago and generated substantial resources from the sale of company stock at that time. This year (2021), the company is issuing $100,000,000 in 5% bonds dated January 1, 2021 to help expand operations in even more countries. The company engaged First Boston Corp. to make a market in the bonds to help get the issuance sold to the public. First Boston informed Burke's financial managers that the bonds would likely sell at a premium because the market rates went down to 4% from the time First Boston purchased the bonds until First Boston sold the bonds in the open market. First Boston charges 0.5% of the face value of the bonds as a commission for making a market for the bonds. The bonds sold on February 1, 2021, pay interest every six months (dated from the original bond debenture date), and mature on December 31, 2025 Two clients of First Boston bought the entire bond issuance. a. At what amount did the bonds sell on February 1, 2021 including all costs? Show the journal entry and all computations.
Burke's Boots makes custom leather boots with sales worldwide. The popular company went public five years ago and generated substantial resources from the sale of company stock at that time. This year (2021), the company is issuing $100,000,000 in 5% bonds dated January 1, 2021 to help expand operations in even more countries. The company engaged First Boston Corp. to make a market in the bonds to help get the issuance sold to the public. First Boston informed Burke's financial managers that the bonds would likely sell at a premium because the market rates went down to 4% from the time First Boston purchased the bonds until First Boston sold the bonds in the open market. First Boston charges 0.5% of the face value of the bonds as a commission for making a market for the bonds. The bonds sold on February 1, 2021, pay interest every six months (dated from the original bond debenture date), and mature on December 31, 2025 Two clients of First Boston bought the entire bond issuance. a. At what amount did the bonds sell on February 1, 2021 including all costs? Show the journal entry and all computations.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Burke's Boots makes custom leather boots with sales worldwide. The popular company went public five years
ago and generated substantial resources from the sale of company stock at that time. This year (2021), the
company is issuing $100,000,000 in 5% bonds dated January 1, 2021 to help expand operations in even more
countries. The company engaged First Boston Corp. to make a market in the bonds to help get the issuance sold
to the public. First Boston informed Burke's financial managers that the bonds would likely sell at a premium
because the market rates went down to 4% from the time First Boston purchased the bonds until First Boston
sold the bonds in the open market. First Boston charges 0.5% of the face value of the bonds as a commission for
making a market for the bonds. The bonds sold on February 1, 2021, pay interest every six months (dated from
the original bond debenture date), and mature on December 31, 2025 Two clients of First Boston bought the
entire bond issuance.
a. At what amount did the bonds sell on February 1, 2021 including all costs? Show the journal entry and all
computations.
b. Create an amortization schedule using the effective interest method (You may use Excel for the schedule
and copy and paste it as a picture into your problem file) for the entire five years of payments.
c. Show all journal entries related to interest for 2021 and 2022.
d. Show the journal entries for the interest payments for 2024 and 2025 as well as the payoff of the loans at
maturity date.
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