Multiple Choice
Which type of bond requires payment of the full principal amount at the end of the loan term?
25
views
11. Long Term Liabilities
Introduction to Bonds and Bond Characteristics
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
On January 1, Providence, Inc. issues $1,000,000 of 10% 5-year bonds at par value. What amount of cash does Providence, Inc. receive from this bond issuance?
A
$1,000,000
B
$950,000
C
$1,050,000
D
$100,000
Verified step by step guidance1
Understand the concept of bond issuance: Bonds are a form of debt financing where the issuer borrows money from investors and agrees to pay interest periodically and repay the principal amount at maturity.
Identify the key details provided in the problem: The bond has a face value of $1,000,000, a stated interest rate of 10%, a term of 5 years, and is issued at par value.
Recognize the meaning of 'par value': Bonds issued at par value are sold at their face value, meaning the cash received by the issuer equals the face value of the bond.
Determine the cash received: Since the bond is issued at par value, the cash received by Providence, Inc. is equal to the face value of the bond, which is $1,000,000.
Verify the correct answer: Compare the calculated cash received ($1,000,000) with the provided options to confirm the correct choice.
6:26mWatch next
Master Bond Payable Definitions with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Introduction to Bonds and Bond Characteristics practice set
Problem sets built by lead tutorsExpert video explanations