- Without prejudice to your solution in Part (a), assume that the
issue price was $884,000. Prepare the amortization table for 2011,
assuming that amortization is recorded on interest payment dates.
Question 5. (TCO D) Hurst, Inc. sold its 8% bonds with a maturity
value of $3,000,000 on August 1, 2009 for $2,946,000. At the time of
the sale, the bonds had 5 years until they reached maturity. Interest
on the bonds is payable semiannually on August 1 and February 1.
The bonds are callable at 104 at any time after August 1, 2011. By
October 1, 2011, the market rate of interest has declined and the
market price of Hurst’s bonds has risen to a price of 101. The firm
decides to refund the bonds by selling a new 6% bond issue to
mature in 5 years. Hurst begins to reacquire its 8% bonds in the
market and is able to purchase $500,000 worth at 101. The
remainder of the outstanding bonds is reacquired by exercising the
bonds’ call feature. In the final analysis, how much was the gain or
loss experienced by Hurst in reacquiring its 8% bonds? (Assume the
firm used straight-line amortization.) Show calculations.
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ACCT 551 Midterm Exam Set 2
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