On 1 August at the year start, the company raised finance of $80 million by issuing
80 million $1 loan stock units. On this date $80 million was credited to long term
liabilities. The loan stock was quoted on a major stock exchange. The loan stock
pays no interest but is redeemable on 31 July five years from issue at a price of
$1.61 per $1. This represents an effective interest rate of 10% each year. On 31
July at the current year end, the stock had a quoted price of $1.18 per $1. The
accountant proposes to make no further entries in the financial statements since
nothing is due to be paid until four years from now. The accountant expresses the
view that the quoted price of the stock is of no relevance to the company, only to the
stockholders.
