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UGBA 102A Lecture Notes - Lecture 10: Interest Expense, American AirlinesExam

Business Administration Undergraduate Program
Course Code
Study Guide

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Kousha Modanlou
November 2, 2018
Chapter 10: Page 537 Q 1,6; Page 537 MC 1,6; Page 542 E10-10, E10-12
Page 537
Q1: From the perspective of the issuer, some of the advantages of issuing bonds instead of stocks
are: a fixed amount of liability, a fixed rate of interest on the bond, and interest payments to the
bondholders that are deductible on the issuers income tax return and thereby lower the net cost
of borrowing.
Q6: A bond coupon rate is the interest rate specified on a bond and the rate used to compute the
bond’s periodic cash interest payment, while the market rate of interest is the rate of return
investors demand for a company’s bonds on the date bonds are issued and the rate used to
compute the bond’s interest expense each period.
MC1: C
MC6: B
Page 542
Required 1
Date Cash interest Interest expense Discount amortization Bonds Book
01/01/2018 $97,327
12/31/2018 $5000 $5840.00 $840.00 $98,167
12/31/2019 $5000 $5890.00 $997.73
12/31/2020 $5000 $5447.62 $1047.62 $100,000
Required 2
December 31 Year 1 Year 2
Unamortized discount $1843 $943
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