Question

On January 1, 2017, FNB bank issued 8 %, 5-year bonds with a face amount of...

On January 1, 2017, FNB bank issued 8 %, 5-year bonds with a face amount of K750, 000 to SNCC COMPANY Interest is payable annually at the beginning of the year. The bond is issued for an effective interest rate of 10%.

Required a) Calculate the value of the bond and prepare the entries to record the issuance of the bonds in the books of FNB

b) Prepare the entries to record the first annual interest accrual and the payment assuming that the company uses effective-interest amortization.

c) At the end of year 3 FNB decided to buy back this bond at a cost of K600, 000. Calculate the gain on loss on this transaction and show the double entry also advice if the bond should be bought back

d)In addition to the purchase price SNCC paid the broker K 30,000 to facilitate the purchase of this bond.Show how this bond will be recorded in the books of Puma

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