Question

Definition of Contract or Face rate of interest vs. Definition of Market or Effective Rate of Interest?

When do bonds sell at Face Value, a Premium and a Discount?

Definition of Net Realizable Value?

Answer #1

Face Interest rate means the actual rate of interest that the company is paying to the bond holder, whereas the effective rate of interest means the actual cost of interest that the company actually bears.

bonds sell at par when the investor's expected rate of return is equal to the rate of interest provided by the company.At premium when the investor's expected rate of return(interest) is less than the rate off interest provided by the company.they sell at discount when the rate of interest provided by the co. is less than the investors expected rate of interest.

Net Realizable Value means the net amount recievable from the sale of asset or anything else after deducting therefrom all the expenses incurred on its sale(ex-Commision,Brokerage,further selling expenses,etc)

Judie Co. issued bonds with a contract interest rate of 0% and a
face amount of $300,000. These are zero-contract interest bonds
(i.e., no payments are made except for the lump sum payment of the
face value of the bonds on their maturity date). The bonds mature
in 20 years. The market interest rate for bonds with the same
degree of riskiness is 4% compounded annually. These bonds were
issued on January 1 of Year 1. Jude uses the effective-interest...

Judie Co. issued bonds with a contract interest rate of 0% and a
face amount of $100,000. These are zero-contract interest bonds
(i.e., no payments are made except for the lump sum payment of the
face value of the bonds on their maturity date). The bonds mature
in 20 years. The market interest rate for bonds with the same
degree of riskiness is 4% compounded annually. These bonds were
issued on January 1 of Year 1. Jude uses the effective-interest...

Activation Exercise 12-1: Bonds Issued at a
Discount
Terms and Definitions
The interest rate paid on the face amount of a bond is called
the of interest. The interest rate paid on similar risk bonds is
called the of interest. When the contract rate of interest is less
than the market rate of interest, the bonds will sell for their
face value. The difference between the selling price and the face
amount of the bonds in this case is called...

1. The stated rate of interest and the effective rate of
interest are synonymous terms. This statement is
A. True
B. False
2. On January 1, Year 1 Residence Company issued bonds with a
$50,000 face value. The bonds were issued at 96 offering a 4%
discount. They had a 20 year term, a stated rate of interest of 7%,
and an effective rate of interest of 7.389%.Assuming Residence uses
the effective interest rate method, the carrying value of the...

.
A bond pays a coupon of $120. If the market interest rate is 10%,
then the bond will sell at a ___________. If the market interest
rate is 15%, then the bond will sell at a __________.
discount; discount
premium; premium
discount; premium
premium; discount

Explain the difference between discount bonds and
premium bonds. When do bonds trade at face value? How do discount
bonds behave? How do premium bonds behave? What is the nature of
the returns from discount bonds vs. those from premium
bonds?

On January 1, a business issues $100,000 face value, 5 year, 10%
contract rate bonds dated January 1. Interest is payable ANNUALLY
each December 31. The bonds were issued at a discount of $7,210 to
reflect a market interest rate of 12%.
Prepare the necessary journal entries to record total interest
expense for the FIRST interest period.

1. Current liabilities
a. Definition of current liabilities
b. Accounting for payroll
i. Prepare journal entry to record
payroll
ii. Prepare journal entry to record
payroll taxes
2. Understand the classifications: secured and unsecured bonds,
callable and convertible bonds
3. Understand the concepts: market interest rate, contractual
interest rate, face value, market
value (the present value) of a bond
4. Accounting (journal entries) for bonds transactions
a. How is the price of a bond quoted?
b. Issuance of bonds at...

1,The carrying value of a bond issued at a discount is its face
value less the unamortized portion of the discount?True or
false?
2. What happens to the carrying value of bonds issued at a
premium over the life of the bond issued ?
a.decreases
b.decreases
c.stays the same
3.the issuance price on bonds sold at par value is
a. less than the face value
b. equal to the face value
c. greater than the face value
d. not determinable...

US Steel issues a $2,000,000 bond at 10% for 8 years. The market
interest rate is 9%. Be sure to use the time value of money tables,
not the formulas; and round your answers to the nearest whole
dollars.
What is the issue price of these bonds and the bond discount or
premium?
Assume that US Steel uses the effective interest method to
amortize the bond discount or premium for the annual interest
payments, what is the interest expense and...

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