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. Bond Discount: 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 issuance price of the bonds. Step 1: Calculate the cash interest payment for bonds. Cash interest payment = Face value × Coupon rate × Interest time period = $ 250 , 000 × 6 % × 1 2 = $ 7 , 500 Step 2: Calculate the present value of cash interest payment. Particulars Amount Interest payment (a) $7,500 PV factor at annual market interest rate of 4% for 10 periods (b) 8.11090 Present value ( a ) × ( b ) $60,832 Table (1) Note: The present value factor for 10 periods at 4% interest would be 8

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It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:

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Chapter 10 Solutions

Financial Accounting

Ch. 10 - From the perspective of the issuer, what are some...Ch. 10 - What are the primary characteristics of a bond?...Ch. 10 - Prob. 3Q Ch. 10 - Differentiate between a bond indenture and a bond...Ch. 10 - Prob. 5Q Ch. 10 - Prob. 6Q Ch. 10 - Prob. 7Q Ch. 10 - Prob. 8Q Ch. 10 - What is the book value of a bond?Ch. 10 - Prob. 10Q

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