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Comment on the impact of ditional long-term financing. P12-4 O'Brien Corporation issued $100,000, face-value, 8% coupon, 10-year bonds ing price was $87,538. Assume that the

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Comment on the impact of ditional long-term financing. P12-4 O'Brien Corporation issued $100,000, face-value, 8% coupon, 10-year bonds ing price was $87,538. Assume that the market rate of interest stays at 10% vero 1. 2001. The bonds pay interest semiannually and were sold to yield 10%. The Payment Amorti V Coupon year period Required: a. Explain what factors would cause the bonds to sell at a discount. b. Prepare the entry that O'Brien made to record the sale of the bonds. 6. Design an Excel spreadsheet to complete the following schedule: Beginning Expense Interest Daca Balance From 1/1/01 7/1/01 1/1/02 7/1/02 1/1/03 7/1/03 1/1/04 7/1/04 1/1/05 7/1/05 1/1/06 7/1/06 1/1/07 6/30/01 12/31/01 6/30/02 12/31/02 6/30/03 12/31/03 6/30/04 12/31/04 6/30/05 12/31/05 7/1/07 1/1/08 7/1/08 1/1/09 7/1/09 1/1/10 7/1/10 6/30/06 12/31/06 6/30/07 12/31/07 6/30/08 12/31/08 6/30/09 12/31/09 6/30/10 12/31/10 d. Prepare the entry to record the first interest payment on June 30, 2001. e. Show how the bonds would be presented on O'Brien's balance sheet at Decemb 2001. CHAPTER 12VONG TERM LIABILITIES. 213 What should the liability value and the economic value of the bonds be on January P12-5 Refer to P12-4. Assume that on June 30, 2009, market interest rates scared to 12% f. What is the economic value of the bonds on December 31, 2001? 1, 2011, the maturity date of the bonds? Explain. h. Prepare the entry to record the retirement of the bonds on January 1, 2011. V a. b. Required: Compute the economic value of the bonds on June 30, 2009. Comment on any accounting adjustments required by O'Brien Corporation because of the change in market interest rates. What entry would be made by O'Brien if it retired the bonds on June 30, 2009, by purchasing the bonds in the open market? d. Explain why the action taken in part (c) may not be in the best interests of O'Brien's stockholders. c. P12-6 The following is the discount amortization schedule for a $1,000 face, 6% semiannual coupon bond, issued when the market interest rate was 10% (compounded semiannu- ally). The bond was issued on January 1, 2001, and matures on December 31, 2005, Beginning Interest Coupon Discount From Ending Balance Expense Payment Amortization Balance 1/1/01 6/30/01 $922.78 $ 46.14 $ 40.00 $ 6.14 $928.92 7/1/01 12/31/01 928.92 46.45 40.00 6.45 935.36 1/1/02 935.36 6/30/02 46.77 40.00 942.13 6.77 47.11 40.00 7.11 949.24 942.13 7/1/02 12/31/02 47.46 7.46 40.00 956.70 949.24 1/1/03 6/30/03 7.84 40.00 964.54 47.84 7/1/03 12/31/03 8.23 972.76 8.64 981.40 1/1/04 9.07 990.47 7/1/04 9.52 1/1/05 956.70 964.54 972.76 981.40 990.47 6/30/04 12/31/04 6/31/05 12/31/05 Totals 48.23 48.64 49.07 49.52 $477.22 40.00 40.00 40.00 40.00 $400.00 1,000.00 $77.22 7/1/05 try would be made? 30, 2003, fc

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