E-Tech Initiatives Limited plans to issue $500,000, 10-year, 4 percent bonds. Interest is payable annually on December 31. All of the bonds will be issued on January 1, 2019.
Show how the bonds would be reported on the January 2, 2019, balance sheet if they are issued at 97.
When companies issue bonds to raise additional capital, the bond's issuance price is determined based on the bond's interest rate compared to the market's rate. If the bond's rate exceeds the market rate, the bond will be issued at a premium. In contrast, if the bond's rate is less than the market rate, the bond will be issued at a discount. Finally, if the bond's rate is equal to the market's rate, the bond will be issued at face value.
Answer and Explanation:
The bonds will be reported at their face value less the discount on the bond. Let's begin, therefore, by calculating the discount on the bond.
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fromChapter 8 / Lesson 7
In this lesson, we will discuss long-term debt in the accounting industry. You will learn the definition of long-term debt, common forms of long-term debt, and why it is important in the business world.