8th Edition

ISBN: 9780078025556

Author: Robert Libby, Patricia Libby, Daniel Short

Publisher: McGraw-Hill Education

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Chapter 10, Problem 12E

Explaining Why Debt Is Issued at a Price Other Than Par

LO10-4, 10-5 The annual report of American Airlines contained the following note:

The Company recorded the issuance of $775 million in bonds (net of $25 million discount) as long-term debt on the consolidated balance sheet. The bonds bear interest at fixed rates, with an average effective rate of 8.06 percent, and mature over various periods of time, with a final maturity in 2031.

After reading this note, an investor asked her financial advisor why the company didn’t simply sell the notes for an effective yield that equaled the coupon rate, thereby avoiding the need to account for a small discount over the next 20 years. Prepare a written response to this question.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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Chapter 10, Problem 11E

Chapter 10, Problem 13E

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On January 1, 2022, Ehrlich Corporation issued 7%, 15-year bonds with a face amount of $4,800,000 . Instructions Prepare the following entries: record the issuance of the bonds on 1/1/22, assuming the bonds were issued at 102 record the issuance of the bonds on 1/1/22, assuming the bonds were issued at 100 prepare the entry for the redemption of the bonds at maturity calculate the total cost of borrowing for these bonds, assuming they are issued at 100

The Long-Term Debt section of Chesapeake's Balance Sheet at December 31, 2022 showed the following: Bonds Payable (7.5%, interest payable 6/30 and 12/31, $1,000,000 due 12/31/2031) Less: Unamortized Bond Discount Carrying Value The journal entry to record the interest payment on June 30, 2023, assuming a market interest rate of 9% would include: a Credit to Discount on Bonds Payable of $3,900 a Credit to Premium on Bonds Payable of $3,900 a Debit to Cash $41,400 (80,000) $920,000 a Credit to Interest Expense of $41,400 a Debit to Interest Expense of $37,500

Kingbird, Inc. issued $430,000 of 5-year, 7% bonds at 97 on January 1, 2020. The bonds pay interest annually. a.) Prepare the journal entry to record the issuance of the bonds. Account Titles and Explanation Debit Credit b.) Compute the total cost of borrowing for these bonds. Total cost of borrowing $ ? c.) Prepare the journal entry to record the issuance of the bonds, assuming the bonds were issued at 101. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit d.) Compute the total cost of borrowing for these bonds, assuming the bonds were issued at 101. Total cost of borrowing $ ?

Chapter 10 Solutions

Financial Accounting, 8th Edition

Ch. 10 - What are the primary characteristics of a bond?...Ch. 10 - Prob. 2Q Ch. 10 - Prob. 3Q Ch. 10 - Prob. 4Q Ch. 10 - From the perspective of the issuer, what are some...Ch. 10 - Prob. 6Q Ch. 10 - Prob. 7Q Ch. 10 - Prob. 8Q Ch. 10 - Prob. 9Q Ch. 10 - Prob. 10Q

Ch. 10 - Prob. 11Q Ch. 10 - Prob. 12Q Ch. 10 - Prob. 1MCQ Ch. 10 - Prob. 2MCQ Ch. 10 - Prob. 3MCQ Ch. 10 - Prob. 4MCQ Ch. 10 - Prob. 5MCQ Ch. 10 - Prob. 6MCQ Ch. 10 - Prob. 7MCQ Ch. 10 - Prob. 8MCQ Ch. 10 - Prob. 9MCQ Ch. 10 - Prob. 10MCQ Ch. 10 - Prob. 1ME Ch. 10 - Prob. 2ME Ch. 10 - Prob. 3ME Ch. 10 - Prob. 4ME Ch. 10 - Prob. 5ME Ch. 10 - Prob. 6ME Ch. 10 - Prob. 7ME Ch. 10 - Prob. 8ME Ch. 10 - Understanding Financial Ratios 0-3, 10-6 The...Ch. 10 - Prob. 10ME Ch. 10 - Prob. 11ME Ch. 10 - Prob. 12ME Ch. 10 - Prob. 1E Ch. 10 - Prob. 2E Ch. 10 - Prob. 3E Ch. 10 - Prob. 4E Ch. 10 - Prob. 5E Ch. 10 - Prob. 6E Ch. 10 - Prob. 7E Ch. 10 - Prob. 8E Ch. 10 - Prob. 9E Ch. 10 - Prob. 10E Ch. 10 - Prob. 11E Ch. 10 - Explaining Why Debt Is Issued at a Price Other...Ch. 10 - Prob. 13E Ch. 10 - Prob. 14E Ch. 10 - Prob. 15E Ch. 10 - Prob. 16E Ch. 10 - Prob. 17E Ch. 10 - Prob. 18E Ch. 10 - Prob. 19E Ch. 10 - Prob. 20E Ch. 10 - Prob. 21E Ch. 10 - Prob. 22E Ch. 10 - Prob. 1P Ch. 10 - Prob. 2P Ch. 10 - Prob. 3P Ch. 10 - Prob. 4P Ch. 10 - Prob. 5P Ch. 10 - Prob. 6P Ch. 10 - Prob. 7P Ch. 10 - Prob. 8P Ch. 10 - Prob. 9P Ch. 10 - Prob. 10P Ch. 10 - Prob. 11P Ch. 10 - Prob. 12P Ch. 10 - Prob. 13P Ch. 10 - Prob. 14P Ch. 10 - Prob. 1AP Ch. 10 - Prob. 2AP Ch. 10 - Prob. 3AP Ch. 10 - Prob. 4AP Ch. 10 - Prob. 5AP Ch. 10 - Prob. 6AP Ch. 10 - Prob. 1CP Ch. 10 - Prob. 2CP Ch. 10 - Prob. 3CP Ch. 10 - Prob. 4CP Ch. 10 - Prob. 5CP Ch. 10 - Evaluating an Ethical Dilemma LO 10-1 Assume that...Ch. 10 - Prob. 1CC

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Solution Summary: The author explains that bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

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