Question -
1. Explain what is contract rate and market rate. Which rate is used to calculate the periodic interest payments and which rate is used to calculate the price of the bond?
2. Which method of amortization ( straight-line or effective interest rate ) produces an interest expense allocation that yields a constant rate of interest over a bond's life? Which method is more accurate and why?
3. Why does a company issuing bonds between interest dates collect the unearned interest from the bond's purchasers at the time of sale? When bonds are issued between interest dates, provide the JE on the first interest payment date.