Question

The following information about two independent bond issues was reported in the financial press:

1.		Province of Manitoba 2.30% bonds, maturing January 1, 2020, were trading at a price of 91.20 to yield a market interest rate of 3.08%.
2.		Loblaw Companies Limited 8.01% bonds, maturing November 23, 2033, were trading at a price of 134.00 to yield a market interest rate of 4.95%.

Were the Province of Manitoba bonds issued at a premium or a discount?
Were the Loblaw bonds issued at a premium or a discount?
Record the issue of $100,000 of each of these two bonds.

Answer 1

1
Province of Manitoba bonds were issued at discount
Loblaw bonds were issued at a premium
2
Province of Manitoba:
	Debit	Credit
Cash	91200		=100000*0.9120
Discount on Bonds payable	8800
Bonds payable		100000
Loblaw Companies Limited:
	Debit	Credit
Cash	134000		=100000*1.34
Bonds payable		100000
Premium on Bonds payable		34000