On January 1, 2016, Standard Incorporated Is Going to Issue

question 57

Essay

On January 1, 2016, Standard Incorporated is going to issue long-term debt in order to obtain money required to finance the purchase of equipment. It will have to pay a market rate of interest of 10% on this borrowed money. Standard is considering two different financial instruments in order to obtain $10,494. The first instrument being considered is a 3-year, 12%, $10,000 note with interest payable every December 31 over the life of the note. Alternatively, a 3-year, non-interest-bearing note with maturity value of $13,657 will be issued. Show how Standard's January 1, 2016 balance sheet and 2016 income statement will differ if Standard chooses to issue the non-interest-bearing note instead of the 10% note.

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