8th Edition

ISBN: 9780078025556

Author: Robert Libby, Patricia Libby, Daniel Short

Publisher: McGraw-Hill Education

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Textbook Question

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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Chapter 10 Solutions

Financial Accounting, 8th Edition

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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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