Question

selected accounts from the sfp of iraj ltd. at 31 december 20x5 and 20x4 are presented below, in thousands. iraj reported earnings of $900 in 20x5, and depreciation expense was $165. bonds of $150 par value were issued during the period for $135 and a discount of $15 was originally recorded.

Answer 1

This involves understanding accounts related to bonds in business finance, and specifically how the pricing of bonds is affected when the bond's interest rate differs from the market interest rate.

Step-by-step explanation:

This pertains to accounting concepts related to the statement of financial position (balance sheet) and involves understanding the issuance and pricing of corporate bonds. In this context, Ford Motor Company's issuance of a five-year bond with a face value of $5,000 and an annual coupon payment of $150 is used as an example to explain the principles of bond pricing, interest rates, and market conditions. The accounts mentioned correspond to the financial reporting elements that track such transactions. When the bond's interest rate is less than the market interest rate, it implies that the bond's fixed coupon payments are less attractive compared to new bonds issued at higher current interest rates, and consequently, the bond would be priced below its face value in the market to compensate the investor for the lower returns.