ACTY 2100: SB 9.2
Bonds will be issued a premium if the stated interest rate is
greater than the market interest rate.
Werner Inc. issues bonds at a premium. Werner's journal entry to record the issuance should include:
credit to Bonds Payable credit to Premium on Bonds Payable debit to Cash
The _____________ rate of interest is used to compute the cash interest paid to bondholders.
stated
The __________rate of interest on a bond is the interest rate printed on the bond, whereas the ___________rate of interest is the current rate of interest being paid on investments with similar characteristics.
stated, market
On January 1, Year 1, Saturn Corporation issues $100,000 of bonds with a stated rate of 8% for $107,020. The bonds pay interest on June 30 and December 31. The market interest rate at the issue date was 6%. The journal entry to record the interest expense on June 30 will include which of the following?
Debit to interest expense $3,211
On January 1, ABC, Inc., issued $100,000 of 10%, 5-year bonds, for $92,280. Interest is due semiannually. When ABC records the first interest payment, which will be greater the debit to Interest Expense or the credit to Cash?
The debit to Interest Expense will be greater because the market rate is greater than the stated interest rate.
ABC Company is in the process of issuing bonds. The bonds have a stated interest rate of 6%, which is 2% above the current market rate. What effect will the two interest rates have on the bond issue price?
The issue price will be above the bond's face value.
The __________ rate of interest is an implied rate based on the price investors pay to purchase a bond.
market
The ___________ rate of interest is used to pay periodic interest on the bonds, whereas the market rate of interest is used to calculate interest expense.
stated
The rate of interest printed on the face of a bond is referred to as the ____________ interest rate.
stated
The true interest rate used by investors to value a bond issue is referred to as the:
market interest rate
If ABC Company issues 100 of its $1,000 bonds at a price of $110,000, the journal entry will include which of the following entries?
A credit to Premium on Bonds Payable of $10,000 A debit to Cash of $110,000. A credit to Bonds payable of $100,000
On January 1, Year 1, Liang Corporation issues a $100,000 bond at a discount for $95,083. The coupon rate is 10% and the market interest rate is 12%. The bonds pay interest semiannually on June 30 and December 31. The journal entry to record the interest payment on June 30, Year 1 will include which of the following entries?
Debit interest expense $5,705 Credit discount on bonds payable $705 Credit cash $5,000
The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______.
Cash; Bonds Payable
True or false: At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond.
False
Common terms used for the market interest rate are:
yield rate effective interest rate
Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance should include:
A debit to discount on bonds payable for $2,000 A credit to bonds payable for $100,000
Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance of the bonds should include debit(s) to:
Cash for $98,000 Discount on bonds payable for $2,000
ABC Company issues a bond with a face value of $100,000 at face amount on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes ______.
a credit to Cash of $6,000 a debit to Interest expense of $6,000
ABC Company issues a bond with a face value of $100,000 at face amount on January 1. The bond carries a stated annual interest rate of 6% payable in cash on December 31 of each year. If ABC issues monthly financial statements, it must make an adjusting entry on January 31 that includes ______.
a credit to Interest payable of $500 a debit to Interest expense of $500
If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value, the transaction will be recorded with a
debit to Cash of $100,000 and a credit to Bonds payable of $100,000.
ABC Corporation issued $100,000 of 10%, 5-year bonds on January 1, 2018, for $92,280. The market interest rate when the bonds were issued was 12%. Interest is paid semi-annually on January 1 and July 1. Using the effective-interest amortization method, how much cash will ABC pay bondholders on July 1, 2018 (rounded to the nearest dollar)?
$5,000
On January 1, Year 1, Liang Corporation issues a $100,000 bond at a discount for $95,083. The coupon rate is 10% and the market interest rate is 12%. The bonds pay interest semiannually on June 30 and December 31. The journal entry to record the interest payment on June 30, Year 1 will include which of the following entries?
Credit cash $5,000
On January 1, Year 1, Saturn Corporation issues $100,000 of bonds with a stated rate of 8% for $107,020. The bonds pay interest on June 30 and December 31. The market interest rate at the issue date was 6%. The journal entry to record the interest expense on June 30 will include which of the following?
Debit premium on bonds payable $789 Credit cash $4,000 Debit to interest expense $3,211
On January 1, Year 1, Saturn Corporation issues $100,000 of bonds with a stated rate of 8% for $107,020. The bonds pay interest on June 30 and December 31. The market interest rate at the issue date was 6%. The journal entry to record the interest expense on June 30 will include which of the following?
Debit premium on bonds payable $789 Debit to interest expense $3,211 Credit cash $4,000