Exam 2: Non-Current Financial Liabilities

When will bonds sell at a premium?

A $100,000 5-year 6% bond is issued on January 1,2017.The bond pays interest annually.The market rate is 8%.What is the selling price of the bonds,rounded to nearest dollar?

Which statement is correct about offsetting?

What is the effective interest rate?

On May 1,2017,Sea Escape Ltd.purchases a new automobile for $18,000 from the dealer who provides the financing.The three-year,interest-free loan is repayable at $500 per month.The market rate of interest for similar transactions is 0.25% per month. Required: Prepare journal entries to record: a.the purchase of the automobile. b.the accrual of interest and the loan payment at the end of May 2017.

Stay Fit for Life Inc.issues three series of $10,000,000 ten-year bonds dated January 1,2017 on the issue date.Interest is payable on June 30 and December 31 each year.Series A has a coupon rate of 7%; series B is 8%; and series C is 11 %.The market rate of interest at time of issue is 8%. Required: a.Prior to making any numerical calculations,comment on whether: i.Series A will sell at a discount,par,or premium and briefly explain why. ii.Series B will sell at a discount,par,or premium and briefly explain why. iii.Series C will sell at a discount,par,or premium and briefly explain why. b.Prepare journal entries to record the issuance of: i.The series A bonds. ii.The series B bonds. iii.The series C bonds.

Cindy Corp sold $400,000 of three-year bonds for $300,500.Interest is of 7.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

What is "firm commitment" underwriting?

Sally has to decide between the following two options: 1)Take out a student loan of $60,000 and study accounting full time for the next three years.The interest on the loan is 5% per year payable annually.The principle to be paid in full after ten years. "2)Study part time and work part time to earn $20,000 per year for the following six years. Once Sally graduates,she estimates that she will earn $35,000 for the first three years and $50,000 the next four years. Sally's banker says the market interest for a ten-year horizon is 7%. Required: a.Calculate NPV of the ten-year cash flows of the two options.For simplification assume that all cash flows happen at year-end. b.Based on the NPV which of the two options is better for Sally? c.What is the primary benefit of leveraging an investment decision? What are two drawbacks to leveraging an investment decision?"