Question: On January 1, 2017, Ashlock Chemical AG issued 4,000,000, 10%, 10-year bonds at 4,543,627. This price resulted in an 8% effective-interest rate on the bonds. Ashlock uses the effective-interest method to amortize bond premium or discount. The interest is paid semi-annually on January 1 and July 1. Rounding to two decimal places, answer the following :

(e) Assume that after interest is paid on January 1, 2018, the company buys back the bonds. On that date, the market interest rate was 12%.

1) Calculate what the company must pay to redeem the bonds. (Hint: This requires time value of money calculations.)

2) Prepare the journal entry to record the redemption.

3) Using a residual analysis, explain why a gain/loss must be recognized; also explain where on the SOCI the gain/loss would appear.

4) Assume a gain was realised. Assess the immediate impact on the debt/asset ratio. What will be the impact on the interest cover ratio for the financial year ending December 31, 2018 (compared with the previous financial year)?

TABLE 3 Present Value of 1 Periods 96154 95238 94340 .93458 92593 .91743 .90909 90090 .89286 86957 92456 90703 89000 87344 85734 84168 82645 81162 .79719 75614 88900 86384 83962 81630 .79383 .77218 .75132 .73119.71178 65752 85480 82270 .79209 .76290 73503 .70843 68301 65873 63552 57175 82193 78353 .74726 .71299 6805864993 62092 .59345 .56743 49718 7903 74622 70496 66634 6301759627 .56447 53464 .50663 43233 75992 71068 66506 62275 .58349 54703 .51316 48166 45235 .37594 73069 67684 6274 58201 54027 .5018746651 43393 40388 32690 70259 64461 .59190 .54393 .50025 46043 42410 39092 .3606 28426 38554 35218 .32197 .24719 64958 .58468 .52679 47509 42888 .38753 .35049 .31728 28748 21494 62460 55684 49697 44401.39711 .35554 .31863 28584 .25668 18691 60057 .53032 46884 41496 36770 .32618 28966 25751 22917 16253 57748 .50507 44230.38782 .34046 .29925 .26333 .23199 20462 14133 55526 8102 41727 .36245 .31524 27454 .23939 20900 .18270 12289 53391 45811.39365 .3387329189 25187 21763 18829 .16312 .10687 51337 43630 37136 .31657 .27027 .23107 19785 16963 .14564 .09293 49363 1552 .35034 29586 25025 21199 17986 15282 13004 08081 47464 .39573.33051 .27615 .23171 19449 1635 13768 .11611 .07027 2 2 2 55839 50835 463 19 42241 1 17