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Determine the bond interest expense for the first year

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Problem - Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year 1, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannually. Shunda Corporation's fiscal year begins on January 1. The company uses the interest method.

Required -

a. Determine the bond interest expense for the first year.

b. Explain why the company was able to issue the bonds for $23,829,684 rather than for the face amount of $22,000,000.

Reference no: EM132692486

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