   Chapter 14, Problem 1MC ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

#### Solutions

Chapter
Section ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
107 views

# On January 1, 2019, Bay Company issues bonds with a face value of $850,000 that pay 9% interest semiannually and mature in 15 years. The market interest rate at the date of issuance is 8%. What is the issue price of the bond? a.$850,000.00 b. $923,491.41 c.$815,386.52 d. $567,656.32 To determine State the issue price of bonds. Explanation Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations. Justification for the correct option b: Calculate the issuing price of the bond:  Particulars Amount Present value of principal ($850,000×0.308319) $262,071.15 Present value of interest payments (38,250 (3)×17.292033)$661,420.26 Issuing price $923,491.41 Table (1) Note: 0.308319 is present value of$1 (where, n=30 (2), i =4 % (1)), 17.292033 is the present value of annuity (where, n=30 (2), i =4% (1))

Working notes:

(1)Calculate the effective interest rate per semiannual period:

Effectiveinterestratepersemi-annualperiod}=Semiannualinterestrate2Periods=8%2periods= </

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