Reference no: EM133173406

Question - On April 1, 2021, Dirkshur Halfway inc. ('DHH issued $5,000,000 of 4% bonds maturing on March 31, 2026. The bonds pay semi-annual interest on September 30 and March 31 each year. The bonds were priced to yield 5% p.a. DHI reports its ?nancial position and ?nancial performance in accordance with IFRS and uses the Amortizad Cost Method for accounting for long-term financial liabilities. DHI has a December 31 year-end.

Required -

(a) Determine the DHI's net proceeds from issuance assuming the underwriter deducted its fee of 1.75% of the face amount from the gross proceeds.

(b) Determine the effective annual interest rate that DHI should use in accounting for this long-term obligation.

(c) Prepare an Amortization Table for the life of the bond to determine the periodic amortization of the bond premium or discount (identifying which it is), the carrying value of the bonds, and the amount of interest expense to recognize each payment period.

(d) Prepare the journal entries DHI will make in respect of this obligation during its 2021 fiscal year.

(e) If interest rates rise steadily over the following two years such that prevailing yields on bonds of similar risk are 6.75% at March 31, 2023, what would you advise DHI to do? What conditions or assumptions are relevant to your advice?