Financial Accounting
9th Edition
ISBN: 9781259738692
Author: Libby
Publisher: MCG
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Chapter 10, Problem 10.12E
Explaining Why Debt Is Issued at a Price Other Than Par
LO10-4, 10-5 The annual report of American Airlines contained the following note:
The Company recorded the issuance of $775 million in bonds (net of $25 million discount) as long-term debt on the consolidated
After reading this note, an investor asked her financial advisor why the company didn’t simply sell the notes for an effective yield that equaled the coupon rate, thereby avoiding the need to account for a small discount over the next 20 years. Prepare a written response to this question.
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Students have asked these similar questions
On January 1, 2022, Ehrlich Corporation issued 7%, 15-year bonds with a face amount of $4,800,000 .
Instructions
Prepare the following entries:
record the issuance of the bonds on 1/1/22, assuming the bonds were issued at 102
record the issuance of the bonds on 1/1/22, assuming the bonds were issued at 100
prepare the entry for the redemption of the bonds at maturity
calculate the total cost of borrowing for these bonds, assuming they are issued at 100
The Long-Term Debt section of Chesapeake's Balance Sheet at December 31, 2022 showed the following:
Bonds Payable (7.5%, interest payable 6/30 and 12/31, $1,000,000
due 12/31/2031)
Less: Unamortized Bond Discount
Carrying Value
The journal entry to record the interest payment on June 30, 2023, assuming a market interest rate of 9% would include:
a Credit to Discount on Bonds Payable of $3,900
a Credit to Premium on Bonds Payable of $3,900
a Debit to Cash $41,400
(80,000)
$920,000
a Credit to Interest Expense of $41,400
a Debit to Interest Expense of $37,500
Kingbird, Inc. issued $430,000 of 5-year, 7% bonds at 97 on January 1, 2020. The bonds pay interest annually.
a.) Prepare the journal entry to record the issuance of the bonds.
Account Titles and Explanation
Debit
Credit
b.) Compute the total cost of borrowing for these bonds.
Total cost of borrowing
$ ?
c.) Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 101. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
d.) Compute the total cost of borrowing for these bonds, assuming the bonds were issued at 101.
Total cost of borrowing
$ ?
Chapter 10 Solutions
Financial Accounting
Ch. 10 - From the perspective of the issuer, what are some...Ch. 10 - What are the primary characteristics of a bond?...Ch. 10 - Prob. 3QCh. 10 - Differentiate between a bond indenture and a bond...Ch. 10 - Prob. 5QCh. 10 - Prob. 6QCh. 10 - Prob. 7QCh. 10 - Prob. 8QCh. 10 - What is the book value of a bond?Ch. 10 - Prob. 10Q
Ch. 10 - Prob. 11QCh. 10 - Prob. 12QCh. 10 - Prob. 1MCQCh. 10 - Prob. 2MCQCh. 10 - Prob. 3MCQCh. 10 - Prob. 4MCQCh. 10 - Prob. 5MCQCh. 10 - Prob. 6MCQCh. 10 - Prob. 7MCQCh. 10 - Prob. 8MCQCh. 10 - Prob. 9MCQCh. 10 - Prob. 10MCQCh. 10 - Prob. 10.1MECh. 10 - Computing the Price of a Bond Issued at Par LO10-2...Ch. 10 - Understanding Financial Ratios 0-3, 10-6 The...Ch. 10 - Computing the Times Interest Earned Ratio LO10-3...Ch. 10 - Computing the Price of a Bond Issued at a Discount...Ch. 10 - Recording the Issuance and Interest Payments of a...Ch. 10 - Prob. 10.7MECh. 10 - Prob. 10.8MECh. 10 - Prob. 10.9MECh. 10 - Prob. 10.10MECh. 10 - Prob. 10.11MECh. 10 - Prob. 10.12MECh. 10 - Prob. 10.13MECh. 10 - Prob. 10.14MECh. 10 - Prob. 10.1ECh. 10 - Prob. 10.2ECh. 10 - Prob. 10.3ECh. 10 - Computing Issue Prices of Bonds Sold at Par, at a...Ch. 10 - Prob. 10.5ECh. 10 - Prob. 10.6ECh. 10 - Prob. 10.7ECh. 10 - Prob. 10.8ECh. 10 - (Chapter Supplement) Recording and Reporting a...Ch. 10 - Prob. 10.10ECh. 10 - Prob. 10.11ECh. 10 - Explaining Why Debt Is Issued at a Price Other...Ch. 10 - Prob. 10.13ECh. 10 - Prob. 10.14ECh. 10 - Prob. 10.15ECh. 10 - Prob. 10.16ECh. 10 - Prob. 10.17ECh. 10 - Prob. 10.18ECh. 10 - Prob. 10.19ECh. 10 - Prob. 10.20ECh. 10 - Prob. 10.21ECh. 10 - Prob. 10.22ECh. 10 - Prob. 10.23ECh. 10 - Prob. 10.24ECh. 10 - Prob. 10.1PCh. 10 - Prob. 10.2PCh. 10 - Comparing Bonds Issued at Par, at a Discount, and...Ch. 10 - Prob. 10.4PCh. 10 - Prob. 10.5PCh. 10 - Recording and Reporting Bonds Issued at a Discount...Ch. 10 - Recording and Reporting a Bond Issued at a...Ch. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Prob. 10.10PCh. 10 - Prob. 10.11PCh. 10 - Prob. 10.12PCh. 10 - Prob. 10.13PCh. 10 - Prob. 10.14PCh. 10 - Prob. 10.15PCh. 10 - Prob. 10.16PCh. 10 - Prob. 10.1APCh. 10 - Prob. 10.2APCh. 10 - Prob. 10.3APCh. 10 - Prob. 10.4APCh. 10 - Prob. 10.5APCh. 10 - Prob. 10.6APCh. 10 - Recording and Reporting a Bond Issued at a Premium...Ch. 10 - Prob. 10.8APCh. 10 - Prob. 10.1CONCh. 10 - Prob. 10.1CPCh. 10 - Prob. 10.2CPCh. 10 - Prob. 10.3CPCh. 10 - Prob. 10.4CPCh. 10 - Prob. 10.5CPCh. 10 - Evaluating an Ethical Dilemma LO 10-1 Assume that...
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