Completion Status QUESTION 6 Jem Co. Issued $900,000 face value of 129% bonds at

Question

Completion Status QUESTION 6 Jem Co. Issued $900,000 face value of 129% bonds at 100 on June 1, 2012. Interest Is payable semiannually on April 1 and October 1. If the company has an accounting year ending on December 31, It should report interest expense for 2012 of: 0 A-$ 36,000 $108,000 C$ 54,000 0 D. $ 63,000 QUESTION 7 A bond issued for a premium indicates that at the date of issue: O A the bonds were issued at a price greater than their face value OBthe bonds are noninterest-bearing Cits contract rate was equal to the prevalling market rate of interest on similar bonds. O D. its contract rate was lower than the prevailing market rate of interest on similar bonds

Explanation / Answer

Ans 6. The correct answer is (D) - $63000. The working is given below Bond face value: $ 900,000 Interest rate per annum 12% Number of months for which the bond were issued 7 (1st June 2012 to 31st Dec 2012) Interest expense = Bond face value * Interest rate per annum * Number of months / 12 ie: 900,000 X 12% X 7/12 = 63000 Ans 7 The correct answer is (A) the bonds were issued at a price greater than their face value A bond is said to be traded at a premium when it is selling for more than its face value, also its contract rate is higher than the prevailing market rate of interest on similar bonds.Hence option (A) is correct.

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