Acme Corporation issued $650,000, 8%, bonds for $720,000. Was the market rate on the date of issue higher than, lower than, or equal to the stated rate of interest?

To determine if the market rate on the date of issue was higher, lower, or equal to the stated rate of interest, we need to understand the relationship between the stated rate of interest and the selling price of the bonds.

When a company issues bonds, the stated rate of interest is the rate used to calculate the periodic interest payments to bondholders. However, the market rate of interest is the prevailing rate in the market at the time of issuance. The market rate determines the price at which the bonds will be sold.

In this case, Acme Corporation issued $650,000, 8% bonds for $720,000. The face value of the bonds is $650,000, which represents the amount that Acme will pay back to the bondholders at the maturity date. The selling price of the bonds is $720,000, which is higher than the face value.

To find out if the market rate is higher or lower than the stated rate, we can compare the coupon interest expense based on the face value of the bonds with the cash interest payments.

The coupon interest expense is calculated by multiplying the face value of the bonds by the stated interest rate:

Coupon interest expense = Face value of bonds * Stated interest rate
= $650,000 * 8% = $52,000

The cash interest payment is calculated by multiplying the face value of the bonds by the market interest rate:

Cash interest payment = Face value of bonds * Market interest rate
= $650,000 * Market interest rate

Since the bonds were sold at a premium (selling price higher than the face value), the cash interest payment must be higher than the coupon interest expense. Therefore, if we compare the cash interest payment with the coupon interest expense, we can determine the relationship between the market rate and the stated rate:

Cash interest payment > Coupon interest expense: Market rate > Stated rate
Cash interest payment < Coupon interest expense: Market rate < Stated rate
Cash interest payment = Coupon interest expense: Market rate = Stated rate

In this case, the bonds were sold for $720,000, which means the cash interest payment must be higher than $52,000 (the coupon interest expense). Since we don't have the exact market interest rate, we can't determine if it is higher or lower than 8%, but we can conclude that it is higher than the stated rate.

Therefore, based on the selling price of the bonds being higher than the face value, we can deduce that the market rate on the date of issue was higher than the stated rate of interest.