[Kairos]

I always have problems with the bond questions when a bond question pops up and its about retiring an existing bond and replacing it with a new issue. can someone walk me through this step by step?

Noting that interest rates are declining, Blue Township opted to retire an existing, callable general obligation bond and replace it with a new bond issue with lower interest. A $4,000,000, 5% bond originally issued at par value with 15 years remaining was retired for $4,100,000. A new $4,000,000, 2%, 30-year bond was issued. The new bond issue was sold at 104 and printing, legal, and administrative costs for the transactions amounted to $5,000. On the government-wide financial statements, this refunding would result in:

A.

$4,000,000 liability due at maturity in 30 years plus a $55,000 liability to be amortized as a component of interest over 30 years.

B.

$4,000,000 liability due at maturity in 30 years plus a $160,000 liability to be amortized as a component of interest over 30 years with a $105,000 expense in the current year.

C.

$4,000,000 liability due at maturity in 30 years plus a $105,000 contra liability to be amortized as a component of interest over 15 years, and a $160,000 additional liability to be amortized as a component of interest over 30 years.

Incorrect D.

$4,000,000 liability due at maturity in 30 years plus a $55,000 liability to be amortized as a component of interest over 15 years.

This “current” refunding used the proceeds of the new debt to repay the old debt in its entirety. For current refundings reported in the government-wide statements, GASB D20.108 states that the difference between the reacquisition price of the old debt and the net carrying amount of the new be amortized over the shorter of the remaining life of the old debt or the life of the new debt, and debt issue costs be deferred. Cash flows for the refunding included outflows of $100,000 for call premium and $5,000 for issuance costs to be amortized over the remaining life of the old bonds, and a $160,000 premium on the new bonds to be amortized for the life of the new bonds. Therefore, for the 15-year remaining life of the retired bond, the difference between the reacquisition price of the old debt and the carrying value of the new debt is being amortized as a component of interest.

[Anonymous]

Bump. Anyone know?

[vodrldnr]

Can you plz post full question ? you are saying D is incorrect ? so the question is to find incorrect answer ??? what are you specifically asking for ???

It ain't About How Hard You Hit

[Author]

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