Murcia Corp. has $4,000,000 of 9.5%, 25yr bonds dated May 1, 2009, with interest payable on April 30 and Oct. 31. Company's fiscal year ends Dec. 31 and uses Straight-Line Method. The bonds are callable aster 10 yrs. at 103 or convertible into 40 shares of $10 par value common stock.
1. Assume Bonds are issued at 103.5 on May 1, 2009.
a. How much Cash Received?
b. How much Bonds Receivable?
c. Bond interest paid Oct. 31, 2009: How much cash paid in interest? How much is amortized? How much is interest expense?
2. Assume bonds are issued at 96.5 on May 1, 2009.
a. How much cash received?
b. How much Bonds Payable?
c. Bond interest payment Oct. 31, 2009: How much paid in interest? Amortized? Interest Expense?
3. Assume the issue price in requirement 1 and that the bonds are called abd retired 10 yrs later.
a. How much cash will have to be paid to retire the bonds?
b. Is there a gain or loss on retirement? How much?
4. Assume the issue price in requirement 2 and that the bonds are converted to common stock in 10 yrs.
a. Is there a gain or los in conversion? How much?
b. How many shares of common stock are issued in exchange for the bonds?
c. In dollar amounts, how does this transaction affect the total liabilities and the total stockholder's equity of the company?