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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.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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Chapter
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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 4DQ
Textbook Problem
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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

Identify the amount of cash received from sales of the bond.

Explanation of Solution

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.

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...

(b)

(1)

To determine

Identify the amounts of face value.

(2)

To determine

Identify the market or effective rate of interest.

(3)

To determine

Identify the contract rate of interest.

(4)

To determine

Identify the maturity amount.

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Chapter 14 Solutions

Financial Accounting
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