Reference no: EM132878654
On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a contractual interest rate of "LIBOR plus 5.5%," which is reset annually on January 1 of each year. The LIBOR rates on January 1, 2017, 2018, and 2019, were 6.5%, 7.0%, and 5.5%, respectively.
Problem 1: journal entry to record the issuance of the bonds on January 1, 2017, at par. What was the effective (or market) interest rate when the bonds were issued?
Problem 2: journal entry to record interest expense for 2017, 2018, and 2019. Assume that interest is paid annually on December 31.
Problem 3: What is the market value of the debt at December 31, 2019, assuming Nicks Corporation's credit risk has not changed.
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