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. 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?

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