Question

Other Financing Options: Valley Medical Center while in the process of deciding on whether to lease the surgical robot was also involved in a large debt issuance. VMC management decided to go out to the market for a $193,900,000 debt borrowing. A majority of the cash from the debt borrowing would be used for infrastructure improvements and additions. A certain amount of funds are to be used for equipment. While not originally on the list of items to be acquired with debit funding, money could be reallocated from the general amounts to be used for 'medical equipment'. The debt schedule is as follows:

Answer 1

1) Journal Entry -

Date	Particulars	Debit Amount	Credit Amount
30/06/2017	Bank A/c_________Dr.	215,523,593.70	-
	To Bonds Payable A/c	-	193,900,000
	To Securities Premium A/c	-	21,623,593.70
	(Being Issuance of bond at premium)

2) Effective rate of Interest on issuance of bond as on 30.06.2017 - 3,777,860/215,523,593.70

= 1.75%

3) Advantage/Disadvantages of own financing or financing through sellers -

Advantages of financing through seller -

1. In the times of economic slowdown or negative growth economic conditions financing through external sources always gives cheaper funds.

2. Availability of external financing is unlimited i.e.there is a huge amount of funds available when financed through external sources which is not the case when entity uses its own funds.

3. Borrowing options if taken positively and repaid at the correct time can help improve creditworthiness and credit ratings.