Kaye Co. issued $5 million face amount of 7.5%. 15-year bonds on April 1,2013. T

Question

Kaye Co. issued $5 million face amount of 7.5%. 15-year bonds on April 1,2013. The bonds pay interest on an annual basis on Mareh 31 each year. a. Assume that market interest rates were slightly lower than 7.5% 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 more than their face amount. The bonds will sell for less 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 $5,065,000. Use the horizontal model to show the effect of issuing the bonds.

Explanation / Answer

1) When the market interest rates are slightly lower than the 7.5% , when bonds are sold, the proceeds from bond issue will be more than the face value

2)

Balance sheet - Income statement Assets = Liabilities + Stock Holders Equity Net Income = Revenue - Expenses 5065000 = 5000000 + 65000 -375000 = 0 - 375000

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