Issuance of Bonds
Three years ago American Insulation Corporation issued 10 percent, $800,000, 10-year bonds for $770,000. Debt issue costs were $3,000. American Insulation exercised its call privilege and retired the bonds for $790,000. The corporation uses the straight-line method both to determine interest and to amortize debt issue costs.
Based on the above, discuss the following prompts centering on the issuance of a new bond issue for Craft Foods, Inc.:
- Explain what is being described by the announcement.
- Discuss the psychological reason for the securities being priced as they are.
- Discuss the accounting considerations for Craft Foods, Inc., including how the sale should be recorded.
