Venzuela Co. is building a new hockey arena at a cost of $2,500,000. It received a down payment of $500,000 from localbusinesses to support the project and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue$2,000,000 of 10.5%, 10-year bonds. These bonds were issued on January 1, 2014, and pay interest annually on each January1. The bonds yield 10%.Question :(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2014.(b) Prepare a bond amortization schedule up to and including January 1, 2018.(c) Assume that on July 1, 2017, Venzuela Co. retires half of the bonds at a cost of $1,065,000 plus accrued interest. Preparethe journal entry to record this retirement.SOAL 3In each of the following independent cases, the company closes its books on December 31.1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2015. The bonds pay interest on September 1 and March 1. The duedate of the bonds is September 1, 2018. The bonds yield 12%. Give entries through December 31, 2016.2. Titania Co. sells $400,000 of 12% bonds on June 1, 2015. The bonds pay interest on December 1 and June 1. The due dateof the bonds is June 1, 2019. The bonds yield 10%. On October 1, 2016, Titania buys back $120,000 worth of bonds for$126,000 (includes accrued interest). Give entries through December 1, 2017.For the two cases, prepare all of the relevant journal entries from the time of sale until the date indicated. (Constructamortization tables where applicable.) Amortize premium or discount on interest dates and at year-end. (Assume that noreversing entries were made; round to the nearest dollar.)SOAL 4Presented below are selected transactions on the books of Simonson Corporation. July 1, 2015 Bonds payable with a par valueof €900,000, which are dated January 1, 2015, are sold at 119.219 plus accrued interest to yield 10%. They are coupon bonds,bear interest at 12% (payable annually at January 1), and mature January 1, 2025. (Use interest expense account for accruedinterest.)Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount ofpremium.Jan. 1, 2016 Interest on the bonds is paid.Jan. 2 Bonds of par value of €360,000 are called at 102 and extinguished.Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.Question :Prepare journal entries for the transactions above.SOAL 5On April 1, 2015, Sarkar Company sold 15,000 of its 11%, 15-year, R$1,000 face value bonds to yield 12%. Interest paymentdates are April 1 and October 1. On April 2, 2016, Sarkar took advantage of favorable prices of its shares to extinguish 6,000of the bonds by issuing 200,000 of its R$10 par value ordinary shares. At this time, the accrued interest was paid in cash. Thecompany’s shares were selling for R$31 per share on April 2, 2016.Question :Prepare the journal entries needed on the books of Sarkar Company to record the following.(a) April 1, 2015: issuance of the bonds.(b) October 1, 2015: payment of semiannual interest.(c) December 31, 2015: accrual of interest expense.(d) April 2, 2016: extinguishment of 6,000 bonds. (No reversing entries made.)
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Venzuela Co. is building a new hockey arena at a cost of $2,500,000. It received a down payment of $500,000 from local
businesses to support the project and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue
$2,000,000 of 10.5%, 10-year bonds. These bonds were issued on January 1, 2014, and pay interest annually on each January
1. The bonds yield 10%.
Question :
(a) Prepare the
(b) Prepare a bond amortization schedule up to and including January 1, 2018.
(c) Assume that on July 1, 2017, Venzuela Co. retires half of the bonds at a cost of $1,065,000 plus accrued interest. Prepare
the journal entry to record this retirement.
SOAL 3
In each of the following independent cases, the company closes its books on December 31.
1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2015. The bonds pay interest on September 1 and March 1. The due
date of the bonds is September 1, 2018. The bonds yield 12%. Give entries through December 31, 2016.
2. Titania Co. sells $400,000 of 12% bonds on June 1, 2015. The bonds pay interest on December 1 and June 1. The due date
of the bonds is June 1, 2019. The bonds yield 10%. On October 1, 2016, Titania buys back $120,000 worth of bonds for
$126,000 (includes accrued interest). Give entries through December 1, 2017.
For the two cases, prepare all of the relevant journal entries from the time of sale until the date indicated. (Construct
amortization tables where applicable.) Amortize premium or discount on interest dates and at year-end. (Assume that no
reversing entries were made; round to the nearest dollar.)
SOAL 4
Presented below are selected transactions on the books of Simonson Corporation. July 1, 2015 Bonds payable with a par value
of €900,000, which are dated January 1, 2015, are sold at 119.219 plus accrued interest to yield 10%. They are coupon bonds,
bear interest at 12% (payable annually at January 1), and mature January 1, 2025. (Use interest expense account for accrued
interest.)
Dec. 31
premium.
Jan. 1, 2016 Interest on the bonds is paid.
Jan. 2 Bonds of par value of €360,000 are called at 102 and extinguished.
Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.
Question :
Prepare journal entries for the transactions above.
SOAL 5
On April 1, 2015, Sarkar Company sold 15,000 of its 11%, 15-year, R$1,000 face
dates are April 1 and October 1. On April 2, 2016, Sarkar took advantage of favorable prices of its shares to extinguish 6,000
of the bonds by issuing 200,000 of its R$10 par value ordinary shares. At this time, the accrued interest was paid in cash. The
company’s shares were selling for R$31 per share on April 2, 2016.
Question :
Prepare the journal entries needed on the books of Sarkar Company to record the following.
(a) April 1, 2015: issuance of the bonds.
(b) October 1, 2015: payment of semiannual interest.
(c) December 31, 2015: accrual of interest expense.
(d) April 2, 2016: extinguishment of 6,000 bonds. (No reversing entries made.)
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