To determine Identify the correct answer by solving the amount of cash proceeds from the issue of the bonds. Explanation Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations. Discount on bonds payable: It occurs when the bonds are issued at a lower price than the face value. Effective-interest method of amortization: It is an amortization model that apportions the amount of bond discount or premium based on the market interest rate. Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value. Determine the amount of cash proceeds (present value) from the issue of the bonds. Step 1: Calculate the cash interest payment for bonds. Cash interest payment = Face value × Coupon interest rate × Interest time period = $ 100 , 000 × 8 % × 1 = $ 8 , 000 Step 2: Calculate the present value of cash interest payment. Particulars Amount Interest payment (a) $8,000 PV factor at annual market interest rate of 10% for 10 periods (b) 6.14457 Present value ( a ) × ( b ) $49,157 Table (1) Note: The present value factor for 10 periods at 10% interest would be 6.14457 (Refer Appendix E (Table E.2) in the book for present value factor)

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ISBN: 9781259964947

Author: Libby

Publisher: MCG

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Chapter 10, Problem 3MCQ

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Identify the correct answer by solving the amount of cash proceeds from the issue of the bonds.

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Chapter 10, Problem 2MCQ

Chapter 10, Problem 4MCQ

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FINANCIAL ACCOUNTING

Ch. 10 - Prob. 1Q Ch. 10 - 2. What are the primary characteristics of a bond?...Ch. 10 - 3. What is the difference between an unsecured and...Ch. 10 - 4. Differentiate between a bond indenture and a...Ch. 10 - 5. What is a bond covenant? Ch. 10 - 6. Differentiate between a bond coupon rate and...Ch. 10 - 7. Explain what determines whether a bond is...Ch. 10 - 8. When calculating the present value of a bond’s...Ch. 10 - 9. What is the book value of a bond? Ch. 10 - Prob. 10Q

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