1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Anarel [89]
3 years ago
10

On January 1, 2021, Essence Communications issued $800,000 of its 10-year, 8% bonds for $700,302. The bonds were priced to yield

10%. Interest is payable semiannually on June 30 and December 31. Essence Communications records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2021, the market interest rate for bonds of similar risk and maturity was 9%. The bonds are not traded on an active exchange. The decrease in the market interest rate was due to a 1% decrease in general (risk-free) interest rates.
Required:
a. Using the information provided, estimate the fair value of the bonds at December 31, 2021.
b. Prepare the journal entry to record interest on June 30, 2021 (the first interest payment).
c. Prepare the journal entry to record interest on December 31, 2021 (the second interest payment).
d. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2021, balance sheet.
Business
1 answer:
aev [14]3 years ago
3 0

Answer:

A)

before decrease in rates: 706,483

   after rate decrease:            751,360

B)

interest expense 35,015.12

discount on BP 3,015.12

cash 32,000

--bonds first interest payment--

C)

interest expense 35,165.87

discount on BP       3,165.87

cash              32,000

--second interest payment--

D)

unrealized loss 44,877

  discount on bonds payable  44,877

--to adjust bonds valuation--

Explanation:

First, we solve for the present value of the bond to get the proceeds from the issuance.

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 32,000

time 20

rate 0.05

32000 \times \frac{1-(1+0.05)^{-20} }{0.05} = PV\\

PV $398,790.7310

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity   800,000.00

time   20.00

rate  0.05

\frac{800000}{(1 + 0.05)^{20} } = PV  

PV   301,511.59

PV c $398,790.7310

PV m  $301,511.5863

Total $700,302.3173

Now, we do the table for the first year:

# / Principal/      paid /    interest /       Amort/End. P

1 700,302 32000 35015.12 3015.12 703,317

2 703,317 32000 35165.87 3165.87 706,483

Now, we have to redo the calculations for the bonds market value considering a decrease in the market rate to 9%

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 32,000

time 18

rate 0.045

32000 \times \frac{1-(1+0.045)^{-18} }{0.045} = PV\\

PV $389,119.7377

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity   800,000.00

time   18.00

rate  0.045

\frac{800000}{(1 + 0.045)^{18} } = PV  

PV   362,240.30

PV c $389,119.7377

PV m  $362,240.2951

Total $751,360.0328

We adjust for: 751,360 - 706,483 = 44,877

This will be an unrealized loss as the liability increases but, will be realized on the redemption of the bonds or at the end of the bonds' life.

You might be interested in
A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per share. The manager of the underwriting
pentagon [3]

Answer:

$12.20 per share for a total of $61,000,000

Explanation:

Calculation to determine how much will the managing underwriter's fee will total:

First step is to calculate the underwriting risk. Amount

Underwriting risk=($0.65 - $0.40)

Underwriting risk=$0.25

Second step is to calculate The total spread is

Total spread=($0.15+ $0.25 +$0.40 )

Total spread=$0.80

Now let determine the amount The issuer will receive and the Total

Amount received = ($13.00 - $0.80)

Amount received=$12.20 per share

Total= ($12.20 x 5,000,000 shares)

Total = $61,000,000

Therefore When the issue is completely sold, the managing underwriter's fee will total:$12.20 per share for a total of $61,000,000

8 0
3 years ago
Compute the current ratio, acid-test ratio, and gross margin ratio as of January 31, 2013. (Round your answers to 2 decimal plac
maxonik [38]

Answer:

NELSON COMPANY

A. Current Ratio = Current Assets/Current Liabilities

= $38,500/$13,000

= 2.96 : 1

B. Acid-test Ratio = Current Assets - Inventory/Current Liabilities

= $24,600/$13,000

= 1.89 : 1

C. Gross margin ratio = Gross margin/Net Sales x 100

= $70,750/$110,950 x 100

= 63.77%

Explanation:

a) Data and Calculations:

NELSON COMPANY

1. Unadjusted Trial Balance  as of January 31, 2013

                                                       Debit     Credit

Cash                                          $ 24,600

Merchandise inventory                12,500

Store supplies                               5,900

Prepaid insurance                         2,300

Store equipment                        42,900

Accumulated depreciation—

    Store equipment                                  $ 19,950

Accounts payable                                         13,000

J. Nelson, Capital                                        39,000

J. Nelson, Withdrawals                2,100

Sales                                                            115,200

Sales discounts                          2,000

Sales returns and allowances   2,250

Cost of goods sold                  38,000

Depreciation expense—

      Store equipment              0

Salaries expense                     31,300

Insurance expense                 0

Rent expense                         14,000

Store supplies expense         0

Advertising expense              9,300

Totals                                $ 187,150       $ 187,150

2. Adjusted Trial Balance as of January 31, 2013

                                                       Debit     Credit

Cash                                          $ 24,600

Merchandise inventory                10,300

Store supplies                                2,800

Prepaid insurance                             800

Store equipment                         42,900

Accumulated depreciation—

    Store equipment                                  $ 21,625

Accounts payable                                         13,000

J. Nelson, Capital                                        39,000

J. Nelson, Withdrawals                2,100

Sales                                                            115,200

Sales discounts                          2,000

Sales returns and allowances   2,250

Cost of goods sold                  40,200

Depreciation expense—

      Store equipment                 1,675

Salaries expense                     31,300

Insurance expense                   1,500

Rent expense                         14,000

Store supplies expense           3,100

Advertising expense               9,300

Totals                               $ 188,825      $ 188,825

3. NELSON COMPANY

Income Statement for the year ended January 31, 2013:

Sales Revenue                                     $110,950

Cost of goods sold                                40,200

Gross profit                                          $70,750

Depreciation expense—

      Store equipment                 1,675

Salaries expense                     31,300

Insurance expense                   1,500

Rent expense                         14,000

Store supplies expense           3,100

Advertising expense               9,300    60,875  

Net Income                                         $ 9,875

4. Sales Revenue                    $115,200

   Sales discount & allowances (4,250)

  Net Sales Revenue             $110,950

5. NELSON COMPANY

Balance Sheet as of January 31, 2013:

Assets:

Cash                                                         $ 24,600

Merchandise inventory                               10,300

Store supplies                                               2,800

Prepaid insurance                                            800

Current Assets:                                           38,500

Store equipment                         42,900

Accumulated depreciation—

    Store equipment                   (21,625)     21,275

Total Assets                                             $ 59,775

Liabilities + Equity:

Accounts payable                                       $13,000

J. Nelson, Capital                                         39,000

J. Nelson, Withdrawals                                 (2,100 )

Net Income                                                 $ 9,875

Total Liabilities + Equity                         $ 59,775

a) Nelson Company's current ratio is the measure of the company's ability to settle maturing short-term liabilities with short-term financial resources.  It is is measured as the relationship between current assets and current liabilities.

b) Nelson's acid-test ratio takes away the encumbrances that can slow the conversion of current assets into cash for the settlement of current liabilities.  In this case, the inventory, stores supplies, and prepaid insurance are excluded.

c) Nelson has a robust gross margin ratio of more than 60%.  This means that it is able to limit the cost of goods sold to below 40%.  However, management of Nelson Company is unable to control its periodic costs in order to generate reasonable net income, as it can only turn less than 9% of the sales into returns for J. Nelson.

7 0
3 years ago
Why should you look for information about the company’s mission and values? A. You don’t need to do that at all unless you are i
elena-14-01-66 [18.8K]

D. You should check to see if they align with yours and as a basis for a possible question

6 0
3 years ago
a companys sales in year 1 were 250,000 and in year 2 were 287,500. Using Year 1 as the base year, the percetn change for year 2
Minchanka [31]

Answer:

115%

Explanation:

Computation of the percentage change for year 2 when compared to the base year

Using this formula

Percentage change=(Year 2 Sales /Year 1 Sales )* 100

Let plug in the formula

Percentage change =($287,500/$250,000) * 100

Percentage change =1.15*100

Percentage change = 115%

Therefore the percentage change in year 2 when compared to the base year will be 115%

6 0
3 years ago
Marcus and Olivia are HR managers at Tacoma Investments. They are expecting a labor surplus over the next two years resulting in
Temka [501]

Answer:

Natural attrition

Explanation:

Attrition means a situation whereby employees starts to leave an organization, this can be measured with a criterion known as Attrition rate. Attrition rate helps an organization to determine the numbers of employee leaving an organization either voluntarily or they are laid off.

Attrition can be due to

a. Better job offer outside.

b. Poor working condition.

c. Lack of growth on present work.

d. Problem with work life balance.

Types of Attrition.

Voluntary attrition, Involuntary attrition, and Retirement.

6 0
3 years ago
Other questions:
  • The following data were selected from the records of Sykes Company for the year ended December 31, Current Year.
    12·1 answer
  • A buyer who needs a significant amount of trust with the seller is looking for a(n) _____. transactional relationship strategic
    12·1 answer
  • Monetary policy has a​ ________ effect on aggregate demand in​ a(n) ________​ economy, and fiscal policy has a​ ________ effect
    11·1 answer
  • Elly owns a small coffee shop. She has only one employee. One weekend, she decided to take a break from work. She is wondering w
    13·1 answer
  • The cost of meeting SEC and possibly additional state reporting requirements regarding disclosure of financial information, the
    13·2 answers
  • In the following situation, imagine you are a waiter at a restaurant. See if you can put this list of tasks in
    8·1 answer
  • InstaTrack is a newly emerging athletic shoe manufacturing company. After extensive market research, InstaTrack divides its mark
    5·1 answer
  • .............................................................................
    12·1 answer
  • An example of a normative economic argument is: Group of answer choices arguing that high degrees of income inequality is ineffi
    11·1 answer
  • An example of a disincentive?
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!