Question

On January 15, Year 1, the Company issued $400,000 of 7.125 percent Senior Notes due January...

On January 15, Year 1, the Company issued $400,000 of 7.125 percent Senior Notes due January 15, Year 10, at par value. Interest on the notes is payable semiannually on January 15 and July 15. At December 31, Year 2, the fair value of the notes, based on market quotes, was approximately $417,460. A. How much cash did the company receive when the Senior Notes were issued on January 15, Year 1? B. How much interest expense was recorded at the time of the first interest payment, assuming semi-annual compounding? C. If the company were to repurchase the remaining notes on December 31, Year 2, how would the company report the event in an accounting entry form?

Balance Sheet

Income Statement

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Noncash Assets

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Liabilities

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Contrib. Capital

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Earned

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Revenues

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Net

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Answer #1
1 As the bonds were issued at par, the amount received by the company is $400,000
2 Interest expense at first interest payment
Interest rate 7.125 per annum
3.5625 semi annual
Face value 400000
Interest expensee =400000*3.5625%
14250 dollors
3 Repurchase on Dec 31, year 2
Balance sheet Income statement
Assets = Liabilities + Capital Revenue - Expensee = Net Income
-417460 -400000 -17460
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