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Chapter 12: Q13RQ (page 654)

What type of account is Premium on Bonds Payable? What is its normal balance? Is it added to or subtracted from the Bonds Payable account to determine the carrying amount?

Short Answer

Expert verified

The premium on bonds payable is known as the excess amount over the face value of the bond.

Step by step solution

01

Definition of liabilities

Liabilities is the amount taken by the company to fund the operation of the company. Liabilities is the legal obligation of the company which company return after fixed period of time.

02

Premium on bonds payable

The premium on bonds payable is an adjunct account. The normal balance of this account is credit. Premium on bonds payable is deducted from the bonds payable to determine the carrying amount.

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Most popular questions from this chapter

Journalizing bond issuance and interest payments

On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with aface value of $240,000. The bonds are issued at 104 and pay interest on June 30 andDecember 31.

Requirements

1. Journalize the issuance of the bonds on January 1, 2018.

2. Journalize the semiannual interest payment and amortization of bond premium onJune 30, 2018.

3. Journalize the semiannual interest payment and amortization of bond premium onDecember 31, 2018.

4. Journalize the retirement of the bond at maturity, assuming the last interest paymenthas already been recorded. (Give the date).

What is the journal entry to retire bonds at maturity?

On January 1, 2018, Fox Corporation signed an \(80,000, four-year, 4% note. The loan required Fox to make payments annually

on December 31 of \)20,000 principal plus interest.

1. Journalize the issuance of the note on January 1, 2018.

2. Journalize the first payment on December 31, 2018.

Bond prices depend on the market rate of interest, stated rate of interest,and time.

Requirements

1. Compute the price of the following 8% bonds of Country Telecom.

a. \(100,000 issued at 75.25

b. \)100,000 issued at 103.50

c. \(100,000 issued at 94.50

d. \)100,000 issued at 103.25

2. Which bond will Country Telecom have to pay the most to retire at maturity?

Explain your answer.

Determining the present value of bond at issuance

On December 31, 2018, when the market interest rate is 12%, Benson Realty issues

$600,000 of 9.25%, 10-year bonds payable. The bonds pay interest semi annually.

Determine the present value of the bonds at issuance.
See all solutions

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