Coley Co. issued $3.10 million face amount of 9%. 10-year bonds on June 1. 2013.

Question

Coley Co. issued $3.10 million face amount of 9%. 10-year bonds on June 1. 2013. The bonds pay interest on an annual basis on May 31 each year. a. Assume that the market interest rates were slightly higher than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? The bonds will sell for less than their face amount. The bonds will sell for more than their face amount. The bonds will sell for equal to their face amount. b-1. Independent of your answer to part (a), assume that the proceeds were $2,737,000. Use the horizontal model to show the effect of issuing the bonds.

Explanation / Answer

Solution:

Assets = Liabilities + Stockholder's Equity Cash    -     $ 273700 Notes Payable - $ 3,100,000 0 Discount on bonds payable - $ 363,000

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