Chapter 14, Problem 4QS

Sub Part-1

To determine

Bonds Issuance:

The Bonds issuance by the company is a source of long term financing and is issued at a par value when the prevailing market rate of interest and stated rate of interest on bonds is equal. In such scenario, the investors are getting the same returns when the investing in bonds as they are getting from the investment made in market.

The Bonds issuance by the company is a source of long term financing and is issued at a discount or premium depending the prevailing market rate of interest and stated rate of interest on bonds. When the stated rate of interest is lower than the market rate of interest, then the investors will be ready to invest only in the situation when the bonds are issued at discount.

The Bonds issuance by the company is a source of long term financing and is issued at a discount or premium depending the prevailing market rate of interest and stated rate of interest on bonds. When the stated rate of interest is higher than the market rate of interest, then the investors will be ready to invest only in the situation when the bonds are issued at premium.

The Journal entry for the issuance of bonds at 99.

Sub Part-2

To determine

Interest Expenses paid in each interest period:

The Interest expense paid during each interest period is computed by multiplying the stated rate of interest on the nominal value of bonds on the basis of period between two interest periods. No discount is added or premium deducted from interest expenses as the bonds has been issued at par.

The Interest expenses paid by the company on each interest period.