A bond is a type of note that requires the issuing entity to pay the face...

  
 
 
 

Transcribed Image Text:

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 - ▾ reported on the Select your answer - Select your answer - ▼ 1. When the market rate is When bonds are issued, cash is - Select your answer - ▼ and bonds payable is Select your answer - the stated rate, the bonds are sold at face value. 2. When the market rate is Select your answer - ▼ 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 - 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 - 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 - Par, 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 financial statement. Since the normal balance for a discount is a debit, it will be deducted from the value of the bonds payable. Alternatively, a premium's normal balance is a credit and will be added the bonds payable. 1. Assume that 8% bonds with a face value of $100,000, due on December 31, 2030, were issued on December 31, 2010. Click on each selling price to see how the selling price affects the journal entry and the balance sheet presentation on the issue date. Selling Price: $90,000 $100,000 $110,000 2. York Inc. issued bonds on January 1, 2012, that had a two year maturity. The bonds had a face value of $148,000 and a contract rate of interest of 8%, which is paid semiannually on June 30 and December 31. a. Assume that the bond's market rate of interest is 12%, and its current selling price is $137,743. The selling price of the bond is Select your answer - ▾ the face value of the bonds, which means that these bonds were issued at - Select your answer - ▼ When the bond is recorded in the journal, Select your answer - for $ The Sele your answer - will be amortized over the life of the should be Select your answer - bonds. ▼ b. Assume that the bond's market rate of interest is 6%, and its current selling price is $153,502. What entry is recorded with the bond issuance? Select your answer - Interest Expense and Amortization The bond pays interest based on the terms of the bond and the issuer records interest expense based on the actual interest expense when the discount or premium is factored into the amount received with the issue. The discount or premium is amortized over the life of the bond using either the straight-line method or the effective interest rate method. 1. When a discount is amortized, the amortization will be recorded with a - Select your answer - to When a premium is amortized, the amortization will be recorded with a Select your answer - Select your answer - to Select your answer - 2. Bonds and amortization of premiums and discounts are a difficult topic to master, so we will start with the straight- line method. a. Fill in the amortization table for each scenario using the straight-line method. Roll over the headings for help with the calculations. Remember, the straight line method amortizes the discount or premium by the same amount each period. Enter all amounts as positive numbers. If required, round amount for the amortized premium/discount to the nearest dollar. (Note: Due to rounding issues, some amounts have been provided for you in the tables.) Interest Semi- Cash Discount on annual Payment Expense Bonds Payable Period (Credit) (Debit) (Credit) 1 2 3 4 1 2 3 5,920 4 Interest Premium on Semi- Cash annual Payment Expense Bonds Payable Period (Credit) (Debit) (Debit) 8,484 5,920 2,564 4,544 1,376 Carrying Discount on Bonds Payable Value Balance 10,257 7,693 2,564 Premium on Bonds Payable Balance 5,502 4,126 1,376 137,743 140,307 148,000 Carrying Value 153,502 152,126 148,000 b. 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 8% and effective rate is 12%. Semi- Cash Interest Discount on annual (Credit) (Debit) Bonds Payable Period Discount on Bonds Payable (Debit) 1 2 3 4 Semi- annual Period 1 2 Assume the stated rate is 8% and effective rate is 6%. Cash Interest Premium on (Credit) (Debit) Bonds Payable (Debit) 3 5,920 4 8,265 5,920 2,345 4,605 2,792 1,315 1,438 Balance 10,257 7,912 .. 2,793 Premium on Bonds Payable Balance 5,502 4,187 1,438 Carrying Value 137,743 140,088 148,000 Carrying Value 153,502 152,187 148,000 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 - ▾ reported on the Select your answer - Select your answer - ▼ 1. When the market rate is When bonds are issued, cash is - Select your answer - ▼ and bonds payable is Select your answer - the stated rate, the bonds are sold at face value. 2. When the market rate is Select your answer - ▼ 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 - 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 - 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 - Par, 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 financial statement. Since the normal balance for a discount is a debit, it will be deducted from the value of the bonds payable. Alternatively, a premium's normal balance is a credit and will be added the bonds payable. 1. Assume that 8% bonds with a face value of $100,000, due on December 31, 2030, were issued on December 31, 2010. Click on each selling price to see how the selling price affects the journal entry and the balance sheet presentation on the issue date. Selling Price: $90,000 $100,000 $110,000 2. York Inc. issued bonds on January 1, 2012, that had a two year maturity. The bonds had a face value of $148,000 and a contract rate of interest of 8%, which is paid semiannually on June 30 and December 31. a. Assume that the bond's market rate of interest is 12%, and its current selling price is $137,743. The selling price of the bond is Select your answer - ▾ the face value of the bonds, which means that these bonds were issued at - Select your answer - ▼ When the bond is recorded in the journal, Select your answer - for $ The Sele your answer - will be amortized over the life of the should be Select your answer - bonds. ▼ b. Assume that the bond's market rate of interest is 6%, and its current selling price is $153,502. What entry is recorded with the bond issuance? Select your answer - Interest Expense and Amortization The bond pays interest based on the terms of the bond and the issuer records interest expense based on the actual interest expense when the discount or premium is factored into the amount received with the issue. The discount or premium is amortized over the life of the bond using either the straight-line method or the effective interest rate method. 1. When a discount is amortized, the amortization will be recorded with a - Select your answer - to When a premium is amortized, the amortization will be recorded with a Select your answer - Select your answer - to Select your answer - 2. Bonds and amortization of premiums and discounts are a difficult topic to master, so we will start with the straight- line method. a. Fill in the amortization table for each scenario using the straight-line method. Roll over the headings for help with the calculations. Remember, the straight line method amortizes the discount or premium by the same amount each period. Enter all amounts as positive numbers. If required, round amount for the amortized premium/discount to the nearest dollar. (Note: Due to rounding issues, some amounts have been provided for you in the tables.) Interest Semi- Cash Discount on annual Payment Expense Bonds Payable Period (Credit) (Debit) (Credit) 1 2 3 4 1 2 3 5,920 4 Interest Premium on Semi- Cash annual Payment Expense Bonds Payable Period (Credit) (Debit) (Debit) 8,484 5,920 2,564 4,544 1,376 Carrying Discount on Bonds Payable Value Balance 10,257 7,693 2,564 Premium on Bonds Payable Balance 5,502 4,126 1,376 137,743 140,307 148,000 Carrying Value 153,502 152,126 148,000 b. 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 8% and effective rate is 12%. Semi- Cash Interest Discount on annual (Credit) (Debit) Bonds Payable Period Discount on Bonds Payable (Debit) 1 2 3 4 Semi- annual Period 1 2 Assume the stated rate is 8% and effective rate is 6%. Cash Interest Premium on (Credit) (Debit) Bonds Payable (Debit) 3 5,920 4 8,265 5,920 2,345 4,605 2,792 1,315 1,438 Balance 10,257 7,912 .. 2,793 Premium on Bonds Payable Balance 5,502 4,187 1,438 Carrying Value 137,743 140,088 148,000 Carrying Value 153,502 152,187 148,000

Answer rating: 100% (QA)

Bonds PayableBond rates Bonds are Liabilities reported on the Balance Sheet When bonds ... View the full answer