Question: 1. Which accounts are debited and which are credited if a bond issue originally sold at a premium is redeemed before maturity at 97 immediately following the payment of interest?
2. Penny Lennon, the chief financial officer of Johnson Inc., is considering the options available to her for financing the company's new plant. Short-term interest rates right now are 6%, and long-term rates are 8%. The company's current ratio is 2.2:1. If she finances the new plant with short-term debt, the current ratio will fall to 1.5:1. Briefly discuss the issues that Penny should consider.