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On January 1, 2017, Tango-In-The-Night, Inc., issued $75 million of bonds with an 8% coupon interest rate. The bonds mature in 10 years and pay
On January 1, 2017, Tango-In-The-Night, Inc., issued $75 million of bonds with an 8% coupon interest rate. The bonds mature in 10 years and pay interest semi-annually on June 30 and on December 31 of each year. The market rate of interest on January 1, 2017, for bonds of this type was 8%. The company closes its books on December 31. Tango-In-The-Night elects the fair value option under ASU 2016-1. Ignore tax effects.
Required:
- At what price were the bonds issued?
- What journal entries would Tango-In-The-Night make in 2017 if the market interest rate for the bonds is 6% at December 31, 2017?
- On December 31, 2018, the general market interest rate for bonds of this type remain at 6%. However, due to Tango-In-The-Nights deteriorating financial strength, the market interest rate for its debt is 10%. What journal entries would the company make during 2018?
- Suppose that the bonds were repurchased for cash on January 1, 2019, when the market rate for the bonds was 10%. What journal entry would the company make to record the debt retirement?
- What would the January 1, 2019, journal entry be if Tango-In-The-Night had not elected the fair value option?
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