Question

Respond to the following discussion question(s):

Answer 1

Answer:

1. A commercial bond is a type of surety bond that serves the purpose of guaranteeing the credibility of business people and making sure they follow the laws governing their field. If a person believes that they have been the victim of a commercial bond holder failing to follow the laws, then they can file a claim with the surety from whom the bondholder purchased the bond. In this way, the surety acts as an insurer.

A company might use bonds rather than finance a project by using a bank because banks have higher interest rates and more restrictions than commercial bonds. The ability to borrow large sums at low-interest rates allows corporations to invest in growth and other projects. Issuing bonds also give companies greater freedom to operate as they see fit. Bonds release firms from the restrictions that are often attached to bank loans.

2. When using the effective interest method, the debit amount in the discount on bonds payable is moved to the interest account. Therefore, the amortization causes interest expense in each accounting period to be higher than the amount of interest paid during each year of the bond's life.