John\'s Cleaning Services issued $22,000 worth of 16-year bonds at 106. The bond
ID: 2575431 • Letter: J
Question
John's Cleaning Services issued $22,000 worth of 16-year bonds at 106. The bonds have stated rate of 6%.
1. Was the market interate rate at the time of issue higher or lower than 6%?How do you know?
- The bond sold at a price (Higher? or Lower?) than par. This indicates that bondholder were willing to pay ( Less? or More?) for those bonds because the stated rate of the interest (6%) was ( Higher? or Lower?) than the market rate of interest.
2. What were the proceeds from the bond issue? $ (_____)
3. Will the interst expense each period be higher or lower than the interest payment?
- The interest expense each period will be (Higher? or Lower?) than the cash payment.
4. Will the book value of the bonds be higher or lower than $22,000 after eight years?
- At the end of eight years, the book value of the bonds will (Equal? or Exceed?) the par value of $22,000 because all of the (Discount? or Premium?) on Bonds Payable will (Have? or Not Have?) been amortized.
Requirements 1. Was the market interest rate at the time of issue higher or lower than 6%? How do you know? 2. What were the proceeds from the bond issue? payment? 4. Will the book value of the bonds be higher or lower than $22,000 after eight years?Explanation / Answer
1.The market interest rate at the time of issue lower than 6%
The bond sold at a price Higher than par. This indicates that bondholder were willing to pay More for those bonds because the stated rate of the interest (6%) was Higher than the market rate of interest.
2. proceeds from the bond issue $23,956.
3.The interest expense each period will be Lower than the cash payment.
because premium on issue.
4.At the end of eight years, the book value of the bonds will Exceed the par value of $22,000 because all of the Premium on Bonds Payable will Not Have been amortized.
Face value 22600 Face value per bond 100 No. of bonds 226 Issue price 106 Proceeds from issue 23956Related Questions
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