Premium on Bonds

Concept: Issuing Bonds at a Premium

8m

Concept: Premium Bonds: Interest Expense, Amortization, and Cash

9m

Concept: Premium Bonds: Interest Expense, Amortization, and Interest Payable

5m

Concept: Premium Bonds: Repaying Principal at Maturity

4m

Problem: The carrying value (i.e. book value) of Bonds Payable is equal to:

3m

Premium on Bonds Additional Practice Problems

Yarborough Enterprises issued a $500,000 of bonds payable with a 10% interest rate at a price of 104. The journal entry to record the issuance of this bond included a:

a. Debit to Cash, $500,000

b. Debit to Bonds Payable, $500,000

c. Credit to Premium on Bonds Payable, $20,000

d. Credit to Cash, $500,000

Watch Solution

On July 1, 2012, Wilson Co. issued $300,000, five-year, 9% bonds at 103. The reason that Wilson issued the bonds at a premium was:

A. the stated rate of interest was higher then the rate being paid on investments of comparable risk.

B. the stated rate of interest was the same as the rate being paid on investments of comparable risk.

C. the stated rate of interest was lower then the rate being paid on investments of comparable risk.

D. None of the above. 

Watch Solution

When the premium on bonds is amortized, the amount of recognized interest expense is

A) greater than the amount of cash paid for interest.

B) equal to the amount of cash paid for interest.

C) equal to the amount of cash paid for interest less the amount of premium amortization.

D) equal to the premium amortization recognized and recorded.

Watch Solution

Yarborough Enterprises issued $500,000 of bonds payable with a 10% interest rate at a price of 104. The journal entry to record the issuance of this bond included a:

a. Debit to Cash, $500,000

b. Debit to Bonds Payable, $500,000

c. Credit to Premium on Bonds Payable, $20,000

d. Credit to Cash, $500,000

Watch Solution

Morgan Company issues 9%, 20-year bonds with a par value of $750,000 that pay interest semi-annually. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is:

a) $60,000

b) $33,750

c) $67,500

d) $30,000

Watch Solution

Bonds with a face value of $200,000 were issued at 103. The entry to record the issuance will include a credit to the Bonds Payable account for

a) $206,000

b) $200,000

c) $103,000

d) $230,000.

Watch Solution