12. A company issues a bond at par. At issuance, the proceeds of the bond issue

Question

12. A company issues a bond at par. At issuance, the proceeds of the bond issue A) represent a cash inflow in the financing section of the firm's statement of cash flows B) represent a cash inflow in the operating section of the firm's statement of cash flows C) represent a cash outflow in the financing section of the firm's statement of cash flows 13. Innovative inventions Inc. needs to raise C10 million. If the company chooses to issue zero-coupon bonds, its debt-to-equity ratio will most likely A) rise as the maturity date approaches B) decline as the maturity date approaches C) remain constant throughout the life of the bond 14. On January 1, Holly Ester Inc. issued $1,000,000 par, 10-year 9% coupon bonds for $938,554. Interest is payable annually on December 31. Holly Ester uses the effective-interest method of amortizing bond discount. At the end of the first year, Holly Ester should report unamortized bond discount of A) $54,900 B) $57,591 C) $51,610 D) $51,000

Explanation / Answer

Question - 12 ........Option - A is correct

Question - 13 .......A) Rise as the maturity date approaches

Question - 14 ...... B) 57591

Total discount amount = 1000,000 - 938554 = 61446

Amortization in the Year - 1 = Carrying amount * YTM - Face value * coupon rate

= 938554 * 10% - 1000,000 * 9% = 93855 - 90000 = 3855

Un amortized amount = 61446 - 3855 = 57591 ............. final answer

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