Determine klausenheimers proceeds from the bond issue

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Reference no: EM132178161

Question - Klausenheimer Inc. just issued a $60 million bond. The bond has a coupon rate of 5% and a maturity of three years. The coupon is payable at the end of each year. The effective interest rate at the beginning of year 1 was 8%, beginning of year 2 was 5%, and beginning of year 3 was 2%. Make sure to show your calculations where applicable.

Determine Klausenheimers proceeds from the bond issue.

If Klausenheimer decided to use the amortized cost method to account for the bonds, then what would be the interest and bond amortization for each of the three years?

If Klausenheimer decided to use the fair value method to account for the bonds, then what would be the interest, unrealized gain/loss, and total expense for each of the three years?

Explain why there is a difference between the amounts charged to income every year under the two methods.

Reference no: EM132178161

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