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Requirement 1. Answer the following questions. At what type of bond price will Thomas Company have total interest expense equal to the cash a. interest payments? Face value Under which type of bond price will Thomas Company's total interest expense be greater than the b. cash interest payments? Discount price If the market interest rate is 12%, what type of bond price can Thomas Company expect for the c. bonds? Discount price

Requirement 1. Answer the following questions. At what type of bond price will Thomas Company have total interest expense equal to the cash a. interest payments? Face value Under which type of bond price will Thomas Company's total interest expense be greater than the b. cash interest payments? Discount price If the market interest rate is 12%, what type of bond price can Thomas Company expect for the c. bonds? Discount price

FINANCIAL ACCOUNTING
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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Thomas Company is planning to issue $510,000 of 9%, 15-year bonds payable to borrow for a major expansion. The owner, Frederick Thomas, asks your advice on some related matters. Read the requirements. ..... Requirement 1. Answer the following questions. At what type of bond price will Thomas Company have total interest expense equal to the cash a. interest payments? Face value Under which type of bond price will Thomas Company's total interest expense be greater than the b. cash interest payments? Discount price If the market interest rate is 12%, what type of bond price can Thomas Company expect for the c. bonds? Discount price Requirement 2. Compute the price of the bonds if the bonds are issued at 89. The price of the $510,000 bond issued at 89 is $ 453,900 Requirement 3. How much will Thomas Company pay in interest each year? How much will Thomas Company's interest expense be for the first year? (For this scenario we are assuming that the $510,000 bonds are issued at 89. Further assume that the straight-line method is used.) If the $510,000 bonds are issued at 89, Thomas Company will pay this amount of interest each year $ 45,900 (Round your answers to the nearest whole dollar.) Assuming that the straight-line method is used, Thomas Company's interest expense for the first year will be Requirements 1. Answer the following questions: At what type of bond price will Thomas Company have total interest expense equal to the cash interest payments? а. b. Under which type of bond price will Thomas Company's total interest expense be greater than the cash interest payments? If the market interest rate is 12%, what type of bond price can Thomas Company expect for the bonds? с. 2. Compute the price of the bonds if the bonds are issued at 89. 3. How much will Thomas Company pay in interest each year? How much will Thomas Company's interest expense be for the first year? (Assume the straight-line method is used.)
Transcribed Image Text:Thomas Company is planning to issue $510,000 of 9%, 15-year bonds payable to borrow for a major expansion. The owner, Frederick Thomas, asks your advice on some related matters. Read the requirements. ..... Requirement 1. Answer the following questions. At what type of bond price will Thomas Company have total interest expense equal to the cash a. interest payments? Face value Under which type of bond price will Thomas Company's total interest expense be greater than the b. cash interest payments? Discount price If the market interest rate is 12%, what type of bond price can Thomas Company expect for the c. bonds? Discount price Requirement 2. Compute the price of the bonds if the bonds are issued at 89. The price of the $510,000 bond issued at 89 is $ 453,900 Requirement 3. How much will Thomas Company pay in interest each year? How much will Thomas Company's interest expense be for the first year? (For this scenario we are assuming that the $510,000 bonds are issued at 89. Further assume that the straight-line method is used.) If the $510,000 bonds are issued at 89, Thomas Company will pay this amount of interest each year $ 45,900 (Round your answers to the nearest whole dollar.) Assuming that the straight-line method is used, Thomas Company's interest expense for the first year will be Requirements 1. Answer the following questions: At what type of bond price will Thomas Company have total interest expense equal to the cash interest payments? а. b. Under which type of bond price will Thomas Company's total interest expense be greater than the cash interest payments? If the market interest rate is 12%, what type of bond price can Thomas Company expect for the bonds? с. 2. Compute the price of the bonds if the bonds are issued at 89. 3. How much will Thomas Company pay in interest each year? How much will Thomas Company's interest expense be for the first year? (Assume the straight-line method is used.)
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