Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of in
ID: 2532791 • Letter: W
Question
Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. The bonds were issued on January 1, 2016, and Wayne uses the straight-line method of amortization. Interest is paid annually on December 31.
If Wayne issued the bonds for 96,
a
the market rate of interest was lower than the stated rate of interest.
b
the market rate of interest was higher than the stated interest rate.
c
the bonds carried a variable or floating rate that changed in response to market conditions.
d
the market rate of interest was equal to the stated rate of interest.
a
the market rate of interest was lower than the stated rate of interest.
b
the market rate of interest was higher than the stated interest rate.
c
the bonds carried a variable or floating rate that changed in response to market conditions.
d
the market rate of interest was equal to the stated rate of interest.
Explanation / Answer
When market rate of interest is higher then stated interest rate then bonds is issued at discount. so in this question bond is issue at 96 which represent discount.
so answer is b) the market rate of interest was higher than the stated interest rate.
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