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In: Finance

On January 1, 2018, Corp X issued 3%, 3 ½ year Bonds to the public, and...

On January 1, 2018, Corp X issued 3%, 3 ½ year Bonds to the public, and also signed a 3 and 1/2 -year lease with PH Corp. Payments of $10,000 on the lease are made at the end of the year for years 1,2 and 3 and ($5,000 in the last period; year 4.) There are no provisions for a bargain purchase or an extension of the lease term. The asset has a fair value of $35,000 and has a useful economic life of 4 years.

Corp. X is rated as a BBB rated company by Moody’s Investors-a rating company.

Additional Facts

1-BBB Market Interest rates:

Date of issue                         on 12/31/2019

Year 1     2%                               1.5%

Year 2    2.5%                            2.0%

Year 3    2.75%                          2.5%

Year 4    3,5%                             3.0%

Year 5     4.0%.                           4.0%

BTW There is no correct answer

Question 7

1-Calculate the market interest rate at date of issue?

2-Calculate the price of the bond at the date of issue?

3-What is the interest expense in Year 1.

4-What is the Balance Sheet value of Bonds payable on 12/31/19? Please provide 2 answers.

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