Answered step by step
Verified Expert Solution
Question
1 Approved Answer
C. Between January 1 and June 30, the market value of the company's bonds increased from $975,000 to $985,000. Explain. Discuss the significance of the
C. Between January 1 and June 30, the market value of the company's bonds increased from $975,000 to $985,000. Explain. Discuss the significance of the increase to the company. The increase in the value of the bonds depicts that either the rate of interest prevailing in the market is matching with the bonds rate or time gap for reedeeming the bonds is reducing. d. Evaluate each of the three suggested alternatives for reporting the bond liability on the balance sheet, giving arguments for and against each alternative. 1) 2) Bonds issued at Par; When the bonds have been issued at face value then it is known as bonds issued at par. It is easy to calculate Issued at discount; when the bonds have been issued less than par value or the market rate of interest is more than the stated rate of interest then it is issued at discount. then it is known as bonds issued at discount. Discount on issue of bonds can be written off according to straight line method and secondly according to effective interest method the amount of discount written off under straight line method remains same whereas under effective interest method it dosent remain same. It changes according to the market rate of interest. the discount amortized over a period of time will be added in the book value so that it becomes equal to par. Straight line method of amortiation is easy to calculate whereas effective interest mehod requires tedious calculations. Issued at Premium ; when the bonds have been issued more than par value or the market rate of interest is less than the stated rate of interest then it is issued at premium. Premium on issue of bonds amortized over the period of time according to the straight line method and secondly according to effective interest method the amount of premium written off under straight line method remains same whereas under effective interest method it dosent remain same. It changes according to the market rate of interest. 3)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started