7. Hynes Inc. issued $100 million of 7.25% bonds to yield 7% at 102 with an issu

Question

7. Hynes Inc. issued $100 million of 7.25% bonds to yield 7% at 102 with an issue date of January 1, 2016 and maturity date of January 1, 2021.

The bond pays annual interest on December 31.. Sampson Corp. purchases $2 million of the bonds at issue at a price of 102.

a. Record the issuance and first interest payment for Hynes Inc.

b. Record the purchase and first interest receipt for Sampson Corp.

c. Assume that Sampson Corp. has classified the bonds as available for sale and the market value of the bonds are 103 at December 31. Record the fair value adjustment.

Explanation / Answer

Answer:a

Cash A/C Dr. $102 million

    To Bonds Payable A/C               $100 million

     To Premium on issue of Bonds A/c   $2 million

Interest expense A/C Dr. $7.14 million

Premium on issue of Bonds A/C Dr. $0.11 million

       To Cash A/C                                        $7.25 million

Answer:b

[Debit]. Investment in Long-term Debt Securities = $2 million
[Debit]. Bond Premium $0.04 million
[Credit]. Cash $2.04 million

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