To determine Identify the correct answer by solving the amount of cash proceeds from the issue of the bonds. 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. Discount on bonds payable: 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 amount of cash proceeds (present value) from the issue of the bonds. Step 1: Calculate the cash interest payment for bonds. Cash interest payment = Face value × Coupon interest rate × Interest time period = $ 100 , 000 × 8 % × 1 = $ 8 , 000 Step 2: Calculate the present value of cash interest payment. Particulars Amount Interest payment (a) $8,000 PV factor at annual market interest rate of 10% for 10 periods (b) 6.14457 Present value ( a ) × ( b ) $49,157 Table (1) Note: The present value factor for 10 periods at 10% interest would be 6.14457 (Refer Appendix E (Table E.2) in the book for present value factor)

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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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Ch. 10 - Prob. 1Q Ch. 10 - 2. What are the primary characteristics of a bond?...Ch. 10 - 3. What is the difference between an unsecured and...Ch. 10 - 4. Differentiate between a bond indenture and a...Ch. 10 - 5. What is a bond covenant? Ch. 10 - 6. Differentiate between a bond coupon rate and...Ch. 10 - 7. Explain what determines whether a bond is...Ch. 10 - 8. When calculating the present value of a bond’s...Ch. 10 - 9. What is the book value of a bond? Ch. 10 - Prob. 10Q

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