Distinguish between nominal and effective interest rates

Assignment Help Accounting Basics
Reference no: EM13148910

A company issues 10 year 8% bonds having a par value of $2 million dollars. The interest on the bonds is paid quarterly on March 31st, June 30th, September 30th, December 31st.

The proceeds to the company on the day the bonds were issued - January 1st - was 1.9 million dollars. On June 30th of year one, the bonds were being traded at 98 and a half and each of the following was suggested as a possible valuation basis for reporting the bond liability on the balance sheet.

a) 1,905,000 (plus six months' straight-line amortization)

b) 2,000,000 (face value)

c) 3,520,000 (face value plus interest payments)

d) 1,970,000 (fair value)

i) Distinguish between nominal and effective interest rates.

ii) Explain the nature of the $100,000 difference between the face value and the market value of the bonds on January 1

iii) Between January 1 and June 30, what happened to the market value of the company's bonds? Explain and discuss the significance to the company.

iv) Evaluate each of the four suggested reporting amounts on the balance sheet, giving arguments for and against each alternative.

v) for item iv) include a discussion of the investor and how the investor should record on January 1st and June 30th.

Reference no: EM13148910

Is this fob shipping point or fob destination

In its annual report, American Eagle Outfitters states that its e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Is this FOB s

Variable costs and fixed costs problem

OUV has spent $2,000,000 in R&D to develop a new product.  The company plans to sell the product for $10 per unit.  It will cost $2 in materials and $1 in labor to produce e

Power of the test the regulators

Testing cars, again. As in Exercise 69, state regulators are checking up on repair shops to see if they are certifying vehicles that do not meet pollution standards. a) In t

Annual cash savings from the purchase

Recovery of working capital will be $10,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $20,000.

Partnership interest following distribution

The partners' relative interests in the Sec. 751 assets do not change as a result of the current distribution. The basis of her partnership interest following the distributi

With which accountant philosophy do you agree

How can you explain the diverse opinions? What policies or procedures, if any, should CBU develop to avoid such problems in the future? Your response should also include a B

What is the role of an expert witness in a trial

What is the role of an expert witness in a trial - How should you prepare for your testimony and Is it appropriate for you, as an expert witness, to provide your opinion of th

Advantages and disadvantages of banks offering

What are the advantages and disadvantages of each bank's offering? Which bank and cash management service would you choose? Why? How can using a bank's cash management service


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd