All categories

3 years ago

The following appeared in the October 15, 2021, issue of the Financial Smarts Journal:

Business

1 answer:

larisa [96]3 years ago

3 0

Answer:

1. The market rate of interest is higher than 7.75% when the Craft Foods bonds were issued.

2. Debit Cash for $746,700,000; Dbit Discount on bond payable for $3,225,000; Debit Bond issue cost for $75,000; and Credit Bond payable for $750,000,000.

Explanation:

1. Based on the information provided in the announcement, indicate whether the market rate of interest is higher or lower than 7.75% when the Craft Foods bonds were issued.

From the information provided, it can be observed that the face value of this bond is 100% but it is issued at 99.57% price. Since the issue price of 99.57% is less than the face value, this implies that the bond is issued at a discount.

When a bond is issued at a discount, it indicates the stated interest rate is lower than the market interest rate.

Therefore, the market rate of interest is higher than 7.75% when the Craft Foods bonds were issued.

2. If debt issue costs were $75,000 and the bonds were issued on an interest payment date, what entry did Craft use to record the sale?

Before the journal entry is prepared, the following are first calculated:

Proceeds from bond issue = Bond price * Total face value = $750,000,000 * 99.57% = $746,775,000

Discount on bond = Total face value - Proceeds from bond issue = 750,000,000 - $746,775,000 = $3,225,000

Cash = Proceeds from bond issue - Debt issue costs = $746,775,000 - $75,000 = $746,700,000

The journal entry will now look as follows:

Description Debit ($) Credit ($)

Cash 746,700,000

Discount on bond payable 3,225,000

Bond issue cost 75,000

Bond payable 750,000,000

(To record bond issue at a discount.)

You might be interested in

Rose has a $20,000 basis in the 60% of the Parent Corporation stock that she owns. Parent Corporation owns a 70% interest in Chi

Degger [83]

Answer:

The answer is: Rose will be taxed as receiving a $15,000 dividend distribution.

Explanation:

Since Parent Corporation owns 70% of Child Corporation, for tax purposes they are considered as one single firm. Rose is the main stockholder of Parent Co. so for tax purposes she is also a stockholder in Child Co. When Child Co. gives her $15,000 in exchange for Parent Co. stock, this would be considered as a dividend distribution rather a stock sale.

7 0

3 years ago

True Taste's Restaurant and Catering serves delicious vegetarian and vegan dishes. So, when the local community became intereste

levacccp [35]

This would be D- an opportunity for True Taste to thrive in their community.

6 0

3 years ago

A two-step binomial tree is used to value an option on the Australian dollar (AUD). The strike price is 1.00 USD per AUD and the

ser-zykov [4K]

Answer:

a.) The proportional up movement , u, for the currency can be calculated using the following formula:

u = eStd Dev * Square root of t

u = e0.06*square root of 0.25

u = 1.0305

b.) Probability of up movement, p , = (a - d) / (u - d)

where a = ert where r = 0.025, t = 0.25

a = e0.025*0.25 = 1.0063

d = 1 / u = 1 / 1.3050 = 0.7663

p = (1.0063-0.7663) / (1.3050-0.7663)

p = 0.46

1-p = 1-0.46 = 0.54

c) Price of an American Call Option on the currency : we use binomial tree for that , as follows: The amounts below line indicate the option price and figures above line indicate the underlying asset price which is 0.55555

3 0

3 years ago

For the purpose of process analysis, which of the following measures would be considered an appropriate flow unit for analyzing

ira [324]

Answer:

a. Sales Dollars

d. number of customers served per day

Explanation:

In process analysis, flow unit can be described as the fundamental unit of analysis in any scenario whatsoever. This can include the customers, phone call, money, goods produced etc. Furthermore, the flow rate is simply the number of flow units. From the example, Sales Dollars and the number of customers served per day are appropriate flow units, while gasoline pumps and employees working are all resources and not flow units.

4 0

3 years ago

Read 2 more answers

On July 1, 2020, Indigo Co. pays $9,400 to Sweet Insurance Co. for a 2-year insurance policy. Both companies have fiscal years e

aliya0001 [1]

Answer:

Explanation:

The journal entries are shown below:

On July 1

Prepaid insurance A/c Dr $9,400

To Cash A/c $9,400

(Being the prepaid insurance for cash is recorded)

On December 31

Insurance expense A/c Dr $2,350

To Prepaid insurance A/c $2,350

(Being the insurance expense is recorded)

The computation is shown below:

= Prepaid insurance amount ÷ number of years × number of months ÷ total number of months in a year

= $9,400 ÷ 2 years × 6 months ÷ 12 months

= $2,350

6 0

3 years ago