On June 30 of the current year, Rural Gas & Electric Co. issued $50,000,000 face value, 9 percent, 10-year bonds payable, with interest dates of December 31 and June 30. The bonds were issued at a discount, resulting in an effective semiannual interest rate of 5 percent.

Instructions

a. Compute the issue price for the bond that results in an effective semiannual interest rate of 5 percent.

b. Prepare a journal entry to record the issuance of the bonds at the sales price you computed in part a.

c. Explain why the bonds were issued at a discount.