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Gaurav D.
Senior Accountant at State Bank of India
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Basic Math
TutorMe
Question:

Find the value of z in the equation given below. z + 6z - 20 = 83

Gaurav D.

The value of z should be determined as follows: z + 6z - 20 = 120 Or, z + 6z = 120 + 20 Or, 7z = 140 Or, z = 140/7 = 20 The value of z is 20.

Finance
TutorMe
Question:

How is the issue price of a bond determined using the market interest rate?

Gaurav D.

When the coupon rate of a bond is different from the market interest rate, bonds are issued at a price different from their face value. If the market interest rate is higher than the coupon rate, the bond is issued at a discount. If the market interest rate is less than the coupon rate, the bond is issued at a premium. In such cases, the issue price of the bond is required to be calculated. Issue price of a bond is equal to the sum of the present value of cash interest to be paid over the life of the bond and the present value of the maturity amount to be paid at the end of the life of the bond. For example, assume that a bond having a face value of \$1,000, a coupon rate of 10%, and maturity period of 5 years is issued when the market interest rate for similar bonds is 12%. The issue price of the bond will be calculated as follows: Issue price = [\$1,000 x 10% x PVIFA (12%, 5)] + [\$1,000 x PVIF (12%, 5)] Where, PVIFA (12%, 5) is the present value of an annuity of \$1: n = 5, i = 12% And, PVIF (12%, 5) is the present value of \$1: n = 5, i = 12%

Accounting
TutorMe
Question:

What is the difference between the direct write off method and the allowance method of recording bad debt expense?

Gaurav D.

Under the direct write off method, bad debt expense is recorded when an account actually becomes uncollectible. Whereas, under the allowance method, an estimated amount of bad debt expense is recorded at the end of each accounting period irrespective of whether an account became uncollectible during the current period or not.

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