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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

A corporation issues $26,000,000 of 9% bonds to yield interest at the rate of 7%. (a) Was the amount of cash received from the sale of the bonds greater or less than $26,000,000? (b) Identify the following amounts as they relate to the bond issue: (1) face amount. (2) Market or effective rate of interest, (3) contract rate of interest, and (4) maturity amount.

(a)

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Contract interest rate: It refers to the interest rate that is stated on the face of the bonds.

Market interest rate: It refers to the interest rate that the lenders expect, or demands from the borrower to part with their money as loan to them.

To identify: The amount of cash received from sales of the bond

Explanation

The amount of cash received from the sale of the bonds is greater than $26,000,000 (face value)...

(b)

(1)

To determine

To Identify: The amounts of face value.

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