Answer: See explanation
Explanation:
a. At what price were the bonds issued?
The bonds were issued at $250 million since the issue price will have thesame value as the face value in this case.
b. On July 1, 2019, the market interest rate for bonds of this risk class is 6%. What is the fair value of the bonds on this date?
The fair value of the bond on this date will be:
= {$250,000,000 × 4% × [(1-1.03)^-16]0.03} + {$250,000,000 × (1/1.03)^-16}
= $281402755
c. Suppose that 50% of the bonds were repurchased for cash on July 1, 2019, at the market price. What journal entry would the company make to record this partial retirement?
The journal entry will be:
July 1 ,2019
Debit Bond payable $250,000,000/2 = $125,000,000
Debit loss on bond redemption = $140,701,378 - $125,000,000 = $15,701,378
Credit Cash $281402755 × 50% = $140,701,378
(To record bond payable redemption)
