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BOND PRACTICE PROBLEM #2 iLearn

QUESTION 1

On May 1, 2000, Chaugin, Inc. issued 6,000 bonds each with a face value of $1,000. The bonds are dated April 1, 2000. The face interest rate is 8.5%. The term of the bonds is 15 years. Interest is paid semiannually. Each bond is convertible into 90 shares of common stock with a par value of $ 10 per share.

A. Record the issue if the bonds are issued when the market rate of interest, on an annual basis, is 8%.

B. Record the issue if the bonds are issued when the market rate of interest, on an annual basis, is 9%.

C. Suppose the bonds are issued when the market rate of interest, on an annual basis, is 9.5%. If the bonds had been issued on April 1, 2000, the total would have been $ 5,525,387.

1. Record the issue of the bonds

2. Record the first interest payment.

D. Suppose the bonds were issued when the market rate of interest was 9.5% on an annual basis. On April 1, 2006, after the interest payment, the balance in the discount account is $ 357,640. On May 1, 2006, Chaugin, Inc. purchases 35% its bonds on the open market for a total of $ 2,040,000. Record this transaction.

E. Suppose that the bonds were issued when the market rate of interest on an annual basis was 7.5%. On April 1, 2006, after the interest payment, the balance in the premium account was $ 387,585. On April 1, 2006, 35% of the bonds were converted into common stock after the company agreed to convert each bond into 95 shares of common stock. The market value of the stock at April 1, 2006 is $ 18 per share. Record this event using the book value

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