Solve A, B, C and 1,2

CA14-1 (Bond Theory: Balance Sheet Presentations, Interest Rate, Premium) On January 1, 2013, Nichols Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were not material in amount. Below are three presentations of the long-term liability section of the balance sheet that might be used for these bonds at the issue date 1. Bonds payable (maturing January 1, 2033) Unamortized premium on bonds payable $1,000,000 85,800 $1,085,800 Total bond liability 2. Bonds payable-principal (face value $1,000,000 maturing $ 142,050a 943,750b $1,085,800 $1,000,000 2,200,000 $3,200,000 January 1, 2033) Bonds payable-interest (semiannual payment $55,000) Total bond liability 3. Bonds payable-principal (maturing January 1, 2033) Bonds payable-interest ($55,000 per period for 40 periods) Total bond liability "The present value of $1,000,000 due at the end of 40 (6-month) periods at the yield rate of 5% per period. "The present value of $55,000 per period for 40 (6-month periods at the yield rate of 5% per period Instructions (a) Discuss the conceptual merit(s) of each of the date-of-issue balance sheet presentations shown above for these bonds. (b) Explain why investors would pay $1,085,800 for bonds that have a maturity value of only $1,000,000 (c) Assuming that a discount rate is needed to compute the carrying value of the obligations arising from a bond issue at any date during the life of the bonds, discuss the conceptual merit(s) of using for this purpose: (1) The coupon or nominal rate (2) The effective or yield rate at date of issue