Wright Corporation is considering the issuance of bonds with different coupon rates and different market rates of interest. For each of the following cases compute the price of the bond (to the nearest dollar): REQUIRED: a. Issue $1,000,000 bonds that pay interest semiannually, at an annual rate of 8%. The market rate of interest on an annual basis is 4%. The bonds mature in 5 years. b. Issue $1,000,000 bonds that pay interest annually, at an annual rate of 6%. The market rate of interest on an annual basis is 4%. The bonds mature in 8 years. c. Issue $1,000,000 bonds that pay interest semiannually, at an annual rate of 4%. The market rate of interest on an annual basis is 4%. The bonds mature in 3 years. d. Issue $1,000,000 bonds that pay interest annually, at an annual rate of 2%. The market rate of interest on an annual basis is 5%. The bonds mature in 10 years. Problem #2 Issuer and investor journal entries (Straight-line amortization) Babcock Incorporated issued bonds to White Corporation on January 1, 2021 with following terms: 5-year maturity, annual coupon rate of 6%, pays interest on June 30 and December 31, $200,000 principal. Consider three different cases: (a) issued at par, (b) issued at 95, and (c) issued at 102. REQUIRED: Assume that White Corporation intends to hold to maturity (see Chapter 12 notes) the bonds. Prepare the journal entries required on January 1, 2021, and on June 30, 2021, for both parties. Use straight-line amortization to record interest. Problem #3 Issuer and investor journal entries (Effective interest method) Kyle Corporation issued $500,000 in bonds to Du Incorporated on March 31, 2021. The bonds were created on January 1, 2021, but were not issued until later due to problems selling the bonds in the market. The bonds mature on December 31, 2024. The bonds pay interest at an annual rate of 10 percent. The interest payment dates are each June 30 and December 31. The market rate of interest is 4 percent. Du Incorporated paid $615,981 for the bonds ($12,500 of accrued interest and $603,481 for the fair value of the bonds i.e., $609,882 less $6,401 of implicit amortization from January 1 to March 31). The amortization of the bonds using the effective interest method from March 31 to June 30 is $6,401 (i.e., 50 percent of the amount for the first six months). The fair value of the bonds on January 1, 2021, is $609,882. REQUIRED: a. Using the effective interest method, complete the remainder of the amortization schedule from issuance through maturity. Date 1/1/21 6/30/21 Cash Payment (Date created) $25,000 Effective Interest $12,198 Premium Amortization $12,802 Problem #4 Zero-Interest note with early extinguishment Carrying Value $609,882 $597,080 b. Using the effective interest method, prepare the journal entries required on March 31, 2021, June 30, 2021, and December 31, 2021, for both parties. Du Inc. intends to hold the bonds to maturity. c. Instead of using the effective interest method, compute the amount of monthly amortization for each party using straight-line amortization. On March 31, 2021, Collins Incorporated issued a long-term note to Jenkins Federal Bank. The $500,000 note does not pay coupon payments but the issue price reflects a 5% market rate of interest. The note matures in five years. On December 31, 2022, Collins Incorporated paid off the note early. Jenkins Federal Bank does not charge a penalty for early repayments. REQUIRED: a. Calculate present value of note issuance and, using the effective inte method, complete an amortization schedule from issuance through maturity. b. Using the effective interest method, prepare the journal entries required on March 31, 2021, and December 31, 2022, for both parties to record the issuance, interest for 2022 and the early extinguishment of the note at the end of 2022. The settlement of the note requires Collins Incorporated to pay off the note at its carrying value at the end of 2022.