Question
AC Corp issues the bonds on the July 1, 2017.Total face value of the issued bonds is $100 million.Cash received on the bonds by AC
AC Corp issues the bonds on the July 1, 2017.Total face value of the issued bonds is $100 million.Cash received on the bonds by AC after all fees are paid was $98 million.The current market interest rate is 9% and AC's bonds are paying a 9.75% stated rate.The bonds were issued at 102.The bonds have interest only payments due every July 1 and January 1.Built into the terms of the bond offering was a "call" feature by which AC can require the bond holders to sell the bonds back to AC for a price of 103 if the redemption occurs before the 5th anniversary of the issuance date, 102 if the redemption occurs between the 5th anniversary and the 8th anniversary and 101 if the redemption occurs between the 8th anniversary and before the redemption date.The bonds carry a 10 year term with all of the outstanding principle due on the 10th anniversary of the issuance date.AC uses a December 31 year end.AC has adopted accounting policies such that Discounts or Premiums are amortized over the life of the bonds using the effective interest method, however all other costs, if any, are amortized using the straight line method.The bonds are convertible into common stock at the election of the bond holder.The market value of the common stock of AC on July 1, 2017 was $28/share.The conversion allows the bond holder to exchange each $1,000 of bonds owned for 40 shares of common stock.On August 15, 2018, AC decides to redeem all of the bonds outstanding and exercises its call rights and repurchases all of the outstanding bonds.
1.What are the necessary journal entries for each of the following periods?
a.2017
b.2018
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