Which one of the assertions about statement 1 and statement 2 is true?
Statement 1: On Friday, 10,000 bonds issued by Echo Corporation were bought by a variety of investors for $1,000 per bond. If Echo received $10 million from the sale of these bonds, then the 10,000 bonds were more likely sold on the primary market than on the secondary market.
Statement 2: Bonds issued by Foxtrot have a face value of $1,000 and pay annual coupons with the next coupon due in 1 year. If the price of the bond is greater than $1,000, then the bondâs coupon rate is greater than its yield-to-maturity.
A. Answer is not possible or not listed
B. Statement 1 is false and statement 2 is false.
C. Statement 1 is true and statement 2 is false.
D. Statement 1 is true and statement 2 is true.
E. Statement 2 is true and statement 1 is false.
Which one of the assertions about statement 1 and statement 2 is true?
Statement 1: On Friday, 10,000 bonds issued by Echo Corporation were bought by a variety of investors for $1,000 per bond. If Echo received $10 million from the sale of these bonds, then the 10,000 bonds were more likely sold on the primary market than on the secondary market.
Statement 2: Bonds issued by Foxtrot have a face value of $1,000 and pay annual coupons with the next coupon due in 1 year. If the price of the bond is greater than $1,000, then the bondâs coupon rate is greater than its yield-to-maturity.
| A. | Answer is not possible or not listed | |
| B. | Statement 1 is false and statement 2 is false. | |
| C. | Statement 1 is true and statement 2 is false. | |
| D. | Statement 1 is true and statement 2 is true. | |
| E. | Statement 2 is true and statement 1 is false. |
Related questions
Issuance of a Bond at Face Value
On January 1, 2014, Whitefeather Industries issued 1,600 $1,000 face value bonds. The bonds have a(n) five-year life and pay interest at the rate of 8%. Interest is paid semiannually on July 1 and January 1. The market rate of interest on January 1 was 8%. Use the present value tables that may be found by clicking on the Present Value button.
Required:
1. Calculate the issue price of the bonds and record the issuance of the bonds on January 1, 2014.
Round your answer to the nearest $1,000. For example, $296,987 would be entered as $297,000.
$
Identify and analyze the effect of the issuance of the bonds on January 1, 2014.
| Activity | - Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 2 |
| Accounts | - Select your answer -Cash Increase, Bonds Payable IncreaseCash Increase, Bonds Payable DecreaseCash Decrease, Bonds Payable IncreaseCash Decrease, Bonds Payable DecreaseCorrect 2 of Item 2 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 2 |
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | â | Expenses | = | Net Income | |||||
| - Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 1 of Item 3 | - Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 3 of Item 3 | - Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 6 of Item 3 | - Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 8 of Item 3 | |||||||||||
2. How would the issue price have been affected if the market rate of interest had been higher than 8%.
- Select your answer -Bonds would be issued at a discount.Bonds would be issued at a premium.Bonds would be issued at face value.Indeterminable without more information.Correct 1 of Item 4
3. Identify and analyze the effect of the payment of interest on July 1, 2014.
| Activity | - Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 5 |
| Accounts | - Select your answer -Cash Increase, Interest Expense IncreaseCash Increase, Interest Expense DecreaseCash Decrease, Interest Expense IncreaseCash Decrease, Interest Expense DecreaseCorrect 2 of Item 5 |
| Statement(s) | - Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 5 |
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Assets | = | Liabilities | + | Stockholders' Equity | Revenues | â | Expenses | = | Net Income | |||||
| - Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 1 of Item 6 | - Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 3 of Item 6 | - Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 6 of Item 6 | - Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 8 of Item 6 | |||||||||||
4. Calculate the amount of interest accrued on December 31, 2014. If required, round your answer to the nearest dollar.
$
