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(Bond Theory: Balance Sheet Presentations, Interest Rate, Premium) On January 1, 2011, Nichols Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were not material in amount.Below are three presentations of the long-term liability section of the balance sheet that might be used for these bonds at the issue date.

(a) Discuss the conceptual merit(s) of each of the date-of-issue balance sheet presentations shown above for these bonds.

(b) Explain why investors would pay $1,085,800 for bonds that have a maturity value of only $1,000,000.

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