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Question

ABC corp. issued a 3 and a half year, 4%, $100,000 of par value bonds on January 1, 2016.

The 3-year

treasury bond interest rate is 3.25%.

The 4-year treasury bond interest rate is 3%


Additional information: 3-year Interest rates for the following:

1 -AAA bonds. 3.75%

2-AA bonds. 4%

3-A bonds  4.25%



Additional information: 4-year Interest rates for the following:

1 -AAA bonds. 3.50%

2-AA bonds. 3.55%

3-A bonds  3.90%


ABC was rated as AAA last year but has since been downgrades to an A rated bond this year.


1- Give 2 reasons why ABC's bond rating fell during the year?

2 -What is the market rate of the 3 1/2-year ABC bond? Explain and show all work and calculations.

3-Present the journal entry for the issuance of the bonds on January 1, 2016. Shown your work as to how the value of the bonds was calculated

4. Show a partial balance sheet on 12/31/2016 relating to this bond issue

5. Show the income statement effects for calendar year 2017 for this bond issue

6. Show the cash flow statement effects of this bond issue for calendar years 2019 and 2018

Top Answer

1. The market position of the company and the amount of debt financing will result in the decrease in the credit... View the full answer

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