Exercise 10-10B Determining cash receipts from bond issues

Accounting for Long-Term Debt

Exercise 10-10B Determining cash receipts from bond issues

Required
Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount:

a. Hett, Inc. issued $400,000 of 8-year, 8 percent bonds at 101.
b. Holt Co. issued $250,000 of 4-year, 6 percent bonds at 98.
c. Holmes Co. issued $300,000 of 10-year, 7 percent bonds at 102¼.
d. Hart, Inc. issued $200,000 of 5-year, 6 percent bonds at 97½.

Exercise 10-11B Stated rate of interest versus the market rate of interest

Required
Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions:

a. ____ The stated rate of interest is less than the market rate.
b. ____ The market rate of interest is equal to the stated rate.
c. ____ The market rate of interest is less than the stated rate.
d. ____ The market rate of interest is higher than the stated rate.
e. ____ The stated rate of interest is higher than the market rate.

Exercise 10-12B Identifying bond premiums and discounts

Required
In each of the following situations, state whether the bonds will sell at a premium or discount:

a. Carver issued $400,000 of bonds with a stated interest rate of 7 percent. At the time of issue, the market rate of interest for similar investments was 6 percent.
b. Herring issued $200,000 of bonds with a stated interest rate of 6 percent. At the time of issue, the market rate of interest for similar investments was 8 percent.
c. Watson, Inc. issued callable bonds with a stated interest rate of 6 percent. The bonds were callable at 102. At the date of issue, the market rate of interest was 7 percent for similar investments.

Exercise 10-13B Determining the amount of bond premiums and discounts

Required
For each of the following situations, calculate the amount of bond discount or premium, if any:

a. Jones Co. issued $120,000 of 6 percent bonds at 101.
b. Jude, Inc. issued $80,000 of 10-year, 8 percent bonds at 98.
c. James, Inc. issued $200,000 of 15-year, 9 percent bonds at 102¼.
d. Jolly Co. issued $400,000 of 20-year, 8 percent bonds at 99¾.