# Ch15-Test1 - Ch.15 All definition 24 Principal contract...

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Ch.15 All definition 24. Principal, contract rate, market or effective rate means. - Principal amount (=Maturity value or par value): The amount the borrower must pay back to the bondholders. -Market interest rate (= effective rate): -Rate in effect when bonds are issued. Rate investors demand for loaning money. Terms!! 25. Contract or effective rate, par premium discount -Stated interest rate (contract) - Printed on bond, Determines cash interest payment. *Bond Prices - Maturity (Par) value: A \$1,000 bond issued for \$1,000. -Discount: A price below maturity (par) value: A \$1,000 bond issued for \$980. -Premium: A price above maturity (par) value: A \$1,000 bond issued for \$1,015. 26. Journal entry for selling bonds at premium, discount [Issued \$50,000 of 10-year, 6% bonds payable on January 1, 2006. Semi-annual] - Selling Bonds at Premium (a price of 105) Jan 1 Cash (\$50,000*1.05) 52,500 Premium on Bonds Payable 2,500 Bonds Payable 50,000 - Selling Bonds at Discount (a price of 95) Jan 1 Cash (\$50,000*0.95) 47,500 Discount on Bonds Payable 2,500 Bonds Payable 50,000 27. Definition of carrying value of bonds The carrying value is the maturity value of the bonds combined with the discount(or premium). The bonds’ carrying value is calculated as the maturity value less the discount.

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01/01/08 \$2,000 - \$70 = \$1,930 06/30/08 \$2,000 - \$54 = \$1,946 12/31/08 \$2,000 - \$37 = \$1,963 06/30/09 \$2,000 - \$19 = \$1,981 12/31/09 \$2,000 - \$0 = \$2,000 28. What happens to the carrying value- amortize, discount, premium.(P.742) [Issued \$50,000 of 10-year, 6% bonds payable on January 1, 2006. Semi-annual(July 1)] - Selling Bonds at Premium (a price of 105 ) Jan 1 Cash (\$50,000*1.05) 52,500 Premium on Bonds Payable 2,500 Bonds Payable 50,000 [Straight Line Amortization] Jul 1 Premium on Bonds Payable
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## This note was uploaded on 06/04/2010 for the course ACC 202 taught by Professor Mirman during the Spring '08 term at University of Nevada, Las Vegas.

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Ch15-Test1 - Ch.15 All definition 24 Principal contract...

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