A bond is a type of note that requires the issuing entity to pay the face value
ID: 2463706 • Letter: A
Question
A bond is a type of note that requires the issuing entity to pay the face value of the bond to the holder when it matures and usually to pay interest at a specified rate. Bonds are - Select your answer -assetsliabilitiesrevenueexpensesCorrect 1 of Item 1 reported on the - Select your answer -balance sheetincome statementretained earnings statementstatement of cash flows Correct 2 of Item 1 .
1. When the market rate is - Select your answer -greater thanless thanequal toCorrect 3 of Item 1 the stated rate, the bonds are sold at face value.
2. When the market rate is - Select your answer -greater thanless thanequal toCorrect 4 of Item 1 the stated rate, bonds will sell for an amount less than their face value. These bonds are said to be sold at - Select your answer - a discounta premiumparCorrect 5 of Item 1 . The issuing company must accept an amount less than face value in order to entice investors to purchase bonds with a lower stated rate. Alternatively, when the market rate is - Select your answer -greater thanless thanequal toCorrect 6 of Item 1 the stated rate, the amount received by the issuing company is greater than the face value of the bonds. These bonds are said to be sold at - Select your answer - discount premium
Face Value, Premium, and Discount
The discount or premium on bonds payable is recorded in a separate account whose balance is combined with bonds payable on the balance sheet. A discount is a contra-liability account and it will be deducted from the bonds payable account. Alternatively, a premium will be added to the bonds payable account.
1. Assume that 8% bonds with a face value of $100,000, due on December 31, 2034 were issued on December 31, 2014. Click on each selling price to see how the selling price affects the balance sheet presentation on the issue date.
2. York Inc. issued bonds on January 1, 2014, that had a two year maturity. The bonds had a face value of $135,000 and a contract rate of interest of 9%, which is paid semiannually on June 30 and December 31.
a. Assume that the bond’s market rate of interest is 14%, and its current selling price is $123,569.
The selling price of the bond is - Select your answer -greater thanless thanequal toCorrect 1 of Item 2 the face value of the bonds, which means that these bonds were issued at - Select your answer -par or face valuea discounta premiumCorrect 2 of Item 2 . When the bond is recorded in the journal, - Select your answer -Discount on Bonds PayablePremium on Bonds PayableCorrect 3 of Item 2 should be - Select your answer - increaseddecreasedCorrect 4 of Item 2 for $ . The - Select your answer -discountpremiumCorrect 6 of Item 2 will be amortized over the life of the bonds.
b. Assume that the bond’s market rate of interest is 6%, and its current selling price is $142,528.
What amount is recorded as the Premium on Bonds Payable?
$
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Bonds are sold at a premium or at a discount when the market value differs from the face value of the bond at the time of sale. Use the current selling price and the face value of the bonds to complete this part.
Interest Expense and Amortization
1. When a discount is amortized, the amortization will be recorded with a(n) - Select your answer -increasedecreaseCorrect 1 of Item 3 to - Select your answer -Discount on Bonds PayablePremium on Bonds PayableCorrect 2 of Item 3 . When a premium is amortized, the amortization will be recorded with a(n) - Select your answer -increasedecreaseCorrect 3 of Item 3 to - Select your answer -Discount on Bonds PayablePremium on Bonds PayableCorrect 4 of Item 3 .
2. Fill in the amortization table for each scenario using the effective interest rate method. Roll over the headings for help with the calculations.
Enter all amounts as positive numbers. If required, in your computations round the interest expense to the nearest dollar. (Note: Due to rounding issues, some amounts have been provided for you in the tables.)
Assume the annual stated rate is 9% and effective rate is 14%.
Assume the stated rate is 9% and effective rate is 6%.
Explanation / Answer
A bond is a type of note that requires the issuing entity to pay the face value of the bond to the holder when it matures and usually to pay interest at a specified rate. Bonds are -liabilities reported on the - -balance sheet .
1. When the market rate is - equal to the stated rate, the bonds are sold at face value.
2. When the market rate is - -greater than the stated rate, bonds will sell for an amount less than their face value. These bonds are said to be sold at - a discount. The issuing company must accept an amount less than face value in order to entice investors to purchase bonds with a lower stated rate. Alternatively, when the market rate is - less than the stated rate, the amount received by the issuing company is greater than the face value of the bonds. These bonds are said to be sold at - premium
The discount or premium on bonds payable is recorded in a separate account whose balance is combined with bonds payable on the balance sheet. A discount is a contra-liability account and it will be deducted from the bonds payable account. Alternatively, a premium will be added to the bonds payable account.
1. Assume that 8% bonds with a face value of $100,000, due on December 31, 2034 were issued on December 31, 2014. Click on each selling price to see how the selling price affects the balance sheet presentation on the issue date.
The option for the answer is not available, question not have any vaildity.
2. York Inc. issued bonds on January 1, 2014, that had a two year maturity. The bonds had a face value of $135,000 and a contract rate of interest of 9%, which is paid semiannually on June 30 and December 31.
a. Assume that the bond’s market rate of interest is 14%, and its current selling price is $123,569.
The selling price of the bond is - Select your answer -less than the face value of the bonds, which means that these bonds were issued at – a discount . When the bond is recorded in the journal, -Discount on Bonds Payable should be - decreased . The - -discount will be amortized over the life of the bonds.
b. Assume that the bond’s market rate of interest is 6%, and its current selling price is $142,528.
What amount is recorded as the Premium on Bonds Payable?
Premium is $7528
1. When a discount is amortized, the amortization will be recorded with a decrease to - Select your answer -Discount on Bonds Payable . When a premium is amortized, the amortization will be recorded with a decrease to - Premium on Bonds Payable
Stated rate 9%, effective rate 14% Semi-annual Period Cash Interest Expense Discount on Bonds Payable Discount on Bonds Payable Balance Carrying Value 11,431 123,569 1 6,075 8,650 2,575 8,856 126,144 2 6,075 8,830 2,755 6,101 128,899 3 6,075 9,023 2,948 3,153 131,847 4 6,075 9,229 3,154 -1 135,001 Stated rate 9% , effective rate 6% Semi-annual Period Cash Interest Expense Premium on Bonds Payable Premium on Bonds Payable Balance Carrying Value 7,528 142,528 1 6,075 4,276 1,799 5,729 140,729 2 6,075 4221.87 1,853 3,876 138,876 3 6,075 4166.2761 1,909 1,967 136,967 4 6,075 4109.01438 1,966 1 135,001Related Questions
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