Reference no: EM132710522
Questions -
Q1. On March 31, 20x7, Pepe issued for $887,000, $1,000,000 face amount of its 10%, $500,000 bonds. The bonds were issued to yield 12%. The bonds are dated July 1, 20x7 and mature on July 1, 20x10. Interest is payable annually on July 1. HARD uses the interest method to amortize bond discount. Determine the interest expense of the Bonds on December 31, 20x8?
Q2. At the beginning of current year, Kreem Company issued 5,000 convertible bonds payable. The bonds have a three-year term and are issued at 110 with a face amount of $1,000 per bond. Interest is payable annually in arrears at a nominal 6% interest rate. Each bond is convertible at anytime up to maturity into 100 ordinary shares with par value of $5. When the bonds are issued, the prevailing market interest rate for similar debt instrument without conversion option is 9%. The present value of 1 at 9% for 3 periods is .77 and the present value of an ordinary annuity of 1 at 9% for 3 periods is 2.53. What amount should be reported as equity component of the original issuance of the convertible bonds payable?
Q3. Included in Lexi Corporation's liability account balances at December 31, 20x6 was a Note payable for $1,400,000. The principal amount of the note payable is $1,400,000 and bears interest at 15%. The note is dated April 1, 20x6 and is payable in four equal installments of $350,000 beginning April 1, 20x7. The first principal and interest payment was made on April 1, 20x7. Determine the interest expense for 20x7. What are the necessary steps to be undertaken? What could possibly be the best answers at each situations?
Q4. Vertu Co. is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Vertu has a $2,500,000 bank loan payable with Chase Bank. The bank accepted an equity interest in Vertu Company in the form of 200,000 ordinary shares quoted at $12 per share. The par value is $10 per share. The fair value of the bank loan payable on the date of restructuring is $2,200,000. What amount should be recognized as gain from debt extinguishment as a result of the equity swap?