Chapter 14, Problem 14.1Q

How is periodic interest determined for outstanding liabilities? For outstanding receivables? How does the approach compare from one form of debt instrument (say bonds payable) to another (say notes payable)?

To determine

Bonds

Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.

To find out: The periodic interest payments determined by the outstanding liabilities and outstanding receivables and also find out the approach compare from one form of debt (Bonds payable to another form (notes payable).

Explanation of Solution

The periodic interest payments determined by the outstanding liabilities

The periodic interest payment is determined for the outstanding liabilities are calculated by multiplying the debt outstanding amount during the period with effective interest rate.

The periodic interest payments determined by the outstanding receivables.

The periodic interest payments are determined for outstanding receivables are calculated by multiplying the debt outstanding amount during the period with effective interest rate.

The approach compare from one form of debt (Bonds payable to another form (notes payable).

The approach compares the particular form of the debt is whether, in the form of notes payable, bonds payable, pensions or other debt instruments