51.The carrying (book) value of a bond at the time when it is issued is always equal to its par value.
52.The carrying (book) value of a bond payable is the par value of the bonds plus any discount or minus any premium.
53.On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The total interest expense on the bond over its eight-year life is $400,000.
Total interest expense recognized is ($500,000 * 10% * 8 years) + discount ($26,155) = $426,155.
54.On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of discount amortized each period is $1,634.69.
($500,000 - $473,845)/16 = $1,634.69
55.On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30 is $25,000.
Interest Expense = Cash Paid + Discount Amortization
Interest Expense = ($500,000 * 10% * 6/12) + ($26,155/16) = $26,634.69
56.A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.
57.A premium reduces the interest expense of a bond over its life.
58.A discount reduces the interest expense of a bond over its life.
59.The market value (issue price) of a bond is equal to the present value of all future cash payments provided by the bond.
60.Premium on Bonds Payable is an adjunct or accretion liability account.