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.:

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  • 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.