On January 1, 2018, Done Right Manufacturing issued P10,000,000 of 6% 5-year bonds when the market interest rate for similar debt is 5%. The bonds pay interest semiannually on July 1 and January 1 and Done right uses the effective interest method to account for long term debt

Present value 2.5% 3.0% 5.0% 6.0%

Single sum for 5 periods 0.88385 0.86261 0.78353 0.74726

Single sum for 10 periods 0.78120 0.74409 0.61391 0.55839

Annuity for 5 periods 4.64583 4.57971 4.32948 4.21236

Annuity for 10 periods 8.75206 8.53020 7.72173 7.36009

a. Are the bonds issued at a discount or a premium?Explain

b. Based on the above information, how much cash did the firm get for the bonds?

c. Based on the above information, After paying interest on January 1, 2019, the firm redeemed the bonds at 98. How much is the gain on redemption?

d. R. U. Sure, The CEO of Done Right, has asked you to explain why bonds are sometimes issued at the premium but sometimes issued at a discount. What would you tell him?

e. Explain the treatment of bond issue cost under the effective interest method?