Several years ago, Clear-Air Systems issued $100 million of 30-year, 8% bonds payable at a small premium. Since the bonds were issued, Clear-Air's financial strength and credit rating have actually improved, but today the bonds are trading among investors at a price of 98. 

(a) Explain the most probable reason why the market price of these bonds has declined, even though Clear-Air‘s credit rating has improved. 

(b) How will the drop in the market value of these bonds be reported (if at all) in Clear Air's income statements and balance sheets? Explain

Answer rating: 100% (QA)

Answer a The interest rates accessible to investors have possibly augmented since ClearAir iss... View the full answer