13.A bond with a face value of $100,000 is issued at a discount. The company receives $95,000. Prepare the journal entry to record the issuance of this bond. (Pages 517-518)

14. California Corporation's accounting equation on the 12/31/15 balance sheet is:

Assets: $850,000 Calculate

CA Corp's Debt to Assets ratio Liabilities: $435,000

Stockholders Equity: $415,000

15. What is a lease called that is essentially the purchase of an asset with debt financing?

16. A 10 year bond, with an interest rate of 5% is issued for $1,000,000. Make the journal entry in good form to record the semi-annual interest rate. (Page 516)

tab cap Accounting for Bond Issues 517 the actual interest rate incurred by the company increases to the level of with changs in the pisent market interest rate. e coersely, if the market rate of Interest is lower than the contctualde rate, investors will have to pay more than face value for the bonds. nversely with changes in market interest rate As market is if the market rate of interest is 8% but the contractual interest nae on -- rh hoods is 10%, the price on the bond, willbe bidup.Whenabandis sold-is- b re than its face value, the difference between the face value and its sell n theace value is called a premium. Illustration 10-6 shows these relationships ing price Bustration 10-6 Interes rates and bond prices Bonds Sel Interest Rate 8% Premium Bond Contractual issued when IOS Face Value Rate 10% 12% Discount Issuance of bonds at an amount different from face value is quite common. By the time a company prints the bond certificates and markets the bonds, it will be a coincidence if the market rate and the contractual rate are the same. Thus, Helpful Hint Some bonds are the issuance of bonds at a discount does not mean t the issuer is suspect. Conversely, the sale of bonds at a premium does not indicate that the financial strength of the issuer is exceptional. hat the financial strength of Zero-coupon bonds, which pay no interesot, sell at a deep discount to tace value. ISSUING BONDS AT A DISCOUNT To illustrate the issuance of bonds at a discount, assume that on January 1, 2014 Candlestick Inc. sells S 100,000, five-year, 105e bonds at 98 (98% of face value) with interest payable on January 1. The entry to record the issuance is: Jan. 1 Cash 98,000 Discount on Bonds Payable Bonds Payable 100,000 +100,000 To record sale of bonds at a discount) ash Flows +98,000 Although Discount on Bonds Payable has a debit balance, it is not an asset. Rather it is a contra account, which is deducted from bonds payable on the balance sheet as shown in Illustration 10-7 CANDLESTICK INC Balance Sheet (partial Illustration 10-7 Statement presentation of discount on bonds payable Long-term liabilities $100,000 Bonds payable Less: Discount on bonds payable 2,000 $98,000