Concept Introduction:
Bonds: Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.
Issue Price : The issue price is the amount of money received the borrower from the issue of bonds. The bonds may be issued at a higher or lower price than their face value that means on premium or on discount.
Contract rate : Contract rate is the rate of interest prescribed in the bond indenture that shall be paid to the bondholder periodically.
Market rate : Market rate is the rate of interest for the same type of bonds prevailing in the market. There may be a difference between the contract rate and market rate of interest on bonds. Due to the difference, the bonds are issued at premium or discount.
Requirement-a:
The amount of annual interest payment on the bonds
Concept Introduction:
Bonds: Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.
Issue Price : The issue price is the amount of money received the borrower from the issue of bonds. The bonds may be issued at a higher or lower price than their face value that means on premium or on discount.
Contract rate : Contract rate is the rate of interest prescribed in the bond indenture that shall be paid to the bondholder periodically.
Market rate : Market rate is the rate of interest for the same type of bonds prevailing in the market. There may be a difference between the contract rate and market rate of interest on bonds. Due to the difference, the bonds are issued at premium or discount.
Requirement-b:
If the bonds were issued at premium or discount
Concept Introduction:
Bonds: Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.
Issue Price : The issue price is the amount of money received the borrower from the issue of bonds. The bonds may be issued at a higher or lower price than their face value that means on premium or on discount.
Contract rate : Contract rate is the rate of interest prescribed in the bond indenture that shall be paid to the bondholder periodically.
Market rate : Market rate is the rate of interest for the same type of bonds prevailing in the market. There may be a difference between the contract rate and market rate of interest on bonds. Due to the difference, the bonds are issued at premium or discount.
Requirement-c:
If the interest expense amount shall be more, less, or equal to the interest payment in each year
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Chapter 7 Solutions
Principles of Financial Accounting (Elon University)
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- Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Manny’s marginal tax rate is 37 percent this year and next year, and that he can earn an after-tax rate of return of 8 percent on his investments. a. What is the after-tax income if Manny sends his client the bill in December? b. What is the after-tax income if Manny sends his client the bill in January? Use Exhibit 3.1. (Round your answer to the nearest whole dollar amount.) c. Based on requirements a and b, should Manny send his client the bill in December or January? multiple choice December Januaryarrow_forwardIsabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $20,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $20,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 8 percent on her investments. a. What is the after-tax cost if Isabel pays the $20,000 bill in December? b. What is the after-tax cost if Isabel pays the $20,000 bill in January? Use Exhibit 3.1. (Round your answer to the nearest whole dollar amount.) c. Based on requirements a and b, should Isabel pay the $20,000 bill in December or January? multiple choice December Januaryarrow_forwardWhen a company pays a bill, the account Cash will be __________.arrow_forward
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