Answered: Inc., issued $ 20,000,000. of bonds,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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D, Inc., issued $ 20,000,000. of bonds, which have a ten year term and a contract or payment interest rate of 6% annually (though interest is paid semiannually) with the issuance on 3/1/2018. These bonds were issued for an effective interest rate or a market rate yield of 7% annually, at an original issue price of $ 18,578,760. Since bond interest on these bonds is paid semiannually, the first payment is made on 9/1/2018.

What is the cash paid to the bondholders on 9/1/2018? What is the corporation’s interest expense on 9/1/2018? What is the carrying value of the bonds on 9/2/2018?

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