Imagine that a competitor in your industry issued bonds five years ago when the market rate of interest on comparable bonds was 5%. The stated rate on the bonds was 5%. In other words, the bonds were issued at 100%. Five years later, your competitor is struggling financially and the value of these bonds has declined to the point where the bonds are currently trading at 80% of their face value. The company is considering issuing new bonds to replace the bonds that were previously issued. Respond to the following in a minimum of 175 words: Consider the debits and credits of the journal entry to replace the old bonds with the new bond issue. What odd account will be credited? Considering the deteriorating financial state of your competitor, what are your thoughts on recording a gain despite their weakened financial health? How might this decision align with the current market conditions and industry trends? The new bonds will have a stated rate of 15% and an associated market rate of 15%. How will net income be affected going forward as a result of these new bonds compared to staying with the old bonds?

Answer rating: 100% (QA)

When replacing the old bonds with new ones the journal entry would involve crediting the Bonds Payab... View the full answer