From page 9-4 of the VLN, what causes the bond liability for a bond issued at a premium to decrease each interest payment period?Group of answer choicesA. Paying the interest.B. The amortization of the premium.C. Paying the principal.D. The bond liability does not decrease when a bond is issued at a premium. Bonds can be issued (sold) for more or less than their face value.Sells at Face Amount (100%):Bond Premium (>100%):Bond Discount (<100%):Determining the Issue Price of a Bond1. Identify the two cash flows provided by the bond (Face value-a single sum AND Interestpayments [face x stated rate or if semiannual then face x % stated rate]-an annuity).2. Compare the market rate with the stated rate to determine if bond will sell at face, premium ordiscount. If at face then no more calculations are needed.3. Eliminate the stated rate, you don't need it anymore as you already know the cash flows fromthe bond.4. Use the market rate and compounding periods to determine the correct factor to present valuethe cash flows.PracticeABC Corporation wants to issue five-year $1,000 bonds 10% stated rate paying semi-annual interest.Market rate of interest is 8%; (therefore, semiannual would be 5% stated rate and 4% market raterespectively). What is the bond issue price on January 1, 20XA?Calculate the issue price of the bond:CASH FLOW X PV FACTOR (use market rate) =Present ValuePresent Value of Principal (Face)Present Value of Interest Payment(Face x stated)Issue price (sales price)OR with the TI BAII Plus CalculatorPMTСРТ PVIYFVThe issue price:Calculate the difference:Bond issue priceBond face amountDifferenceRecord the bond issuance on January 1, 20XA Effective Interest Amortization (Note: this differs from the book)The purpose of the effective iInterest amortization is to get rid of the differencebetween the bond payable and the bond liability.Affects Income statementAffects Cash FlowAffects Liabilities on BSBond Interest ExpenseBond Interest PaidAmortization AmountCarrying value atBeginning ofPeriodMarket rateFace valueStatedx at issuance(EffectiveInterest Rate)of bondInterestAmortization Amount%3DUse the amortization schedule below to record the first interest payment on June 30, 20XANote: this differs from the bookDetermining the bond carrying value at the end of the period:Interest expense - interest payment = amount amortized + Bond carrying value at the beginning ofthe period Bond carrying value at the end of the interest payment period.Dateİnterest expense @.04 (1/2 market)Interest payment @05 (1/2 stated)AmortizationCarrying Value at end1/1/XA6/30/XA$1,081.1112/31/XA6/30/XBBond Liability (Carrying Value)Premium$1,081(8%)XXXXXXBLXXXXXXNAXXXD BXXXXXxXXXXXXXXX$1,000110@MaturityInterest payment periods, every 6 months

Bond premium is the premium which has been received by the company who has issued the bond by way of…

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Accounting

what causes the bond liability for a bond issued at a premium to decrease each interest payment period?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 9Q: What kind of account is the Discount on Bonds Payable? What kind of account is the Premium on Bonds...

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Select the correct answer to each of the following statements. A. Increase B. Decrease C. Remain Constant 1. The amount of interest expense will _______ each payment period for a bond issued at a discount. 2. When a bond is issued at a discount, the cash interest payment will _________ over the life of the bond. 3. When a bond is issued at a premium, the carrying value of the bond will _______ over the life of the bond.
From page 9-3 of the VLN, when determining the issue price of a bond, which interest rate would you use? Group of answer choices A. Stated rate B. Market rate C. Nominal rate D. Compound rate
Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount. (Round your answers to nearest dollar amount.) Required Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount. (Round your answers to nearest dollar amount.) \table[[,, \table[[Cash], [Proceeds]], \table[[Discount or], [Premium]]], [a., Pear, Inc. issued $190,000 of 10-year,8 percent bonds at 103., Premium,], [b., Apple, Inc. issued $92,000 of five-year, 12 percent bonds at 99.,, Discount], [c., Cherry Co. issued $196,000 of five-year, 6 percent bonds at 1031/4., Premium,], [d., Grape, Inc. issued $39,000 of four-year, 8 percent bonds at 99.00., Discount,]] Required Compute the cash proceeds from bond issues under the following terms. For each case, indicate whether the bonds sold at a premium or discount. (Round your answers to nearest dollar amount.) a.…
Given the information below, which bond(s) will be issued at a discount? Stated Rate of Return Market Rate of Return. Bond 1. O Bond 2. Bond 4. O Bonds 1 and 2. Bond 1 5% 7% Bond 2 7% 8% Bond 3 12% 12% Bond 4 10% 9%
What kind of account is the Discount on Bonds Payable? What kind of account is the Premium on Bonds Payable?
1. To calculate a gain or loss on redemption of a bond, you compare a. The market interest rate to the contract rate b. The carrying value value of the bond to the proceeds received from the sale of the bond c. The income for the period d. The proceeds to the unamortized premium or discount 2. If the proceeds are greater than the carrying value, you will have a a. gain with a credit balance b. gain with a debit balance c. loss with a debit balance d. loss with a credit balance
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Write the formulae of: Zero-coupon Bond & Non-zero coupon Bond Ordinary Annuity & Annuity Due (Present Value) Ordinary Annuity & Annuity Due (Future Value) Simple Interest & Compound Interest Perpetual Bond
16. Under the straight-line amortization method, interest expense on a bond sold at a premium is equal to the a. interest paid plus bond premium amortizationb. interest rate times the book value of the bondsc. interest rate times the face value of the bondsd. interest paid minus bond premium amortization
K Bonds are priced in the market so that their A. stated rate B. yield OC. discount OD. par value is the same as the market rate of interest.
When the effective-interest method is used, the amount of bond discount amortized eachinterest period is equal to thea. amount of interest expense less the cash paid for interest.b. amount of interest expense plus the cash paid for interest.c. face value of the bond times the market interest rate at the date of issue.d. face value of the bond times the stated interest rate.