57 - Cash received from bond issue is greater than face...

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Recording Interest on Bonds Issued at a Discount Referring to the previous example, interest expense on July 1 would be recorded as follows: Interest expense is debited for the carrying amount x market rate x 1/2 Cash is credited for the face value x stated rate x 1/2 Discount is credited for the difference between the expense and payment Date Accounts Debit Credit 1-July Interest Expense (96,149 x 5%) $4,807 Discount on Bonds Payable $307 Cash ($100,000 x____) _________ Issuing Bonds at a Premium If stated interest rate of bonds is greater than market interest rate, bondholders will pay more than face value for bond Market price of bond increases above face value
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Unformatted text preview: Cash received from bond issue is greater than face value Issuing Bonds at a Premium Suppose a company issues $100,000 of 9%, five-year bonds when the market interest rate is 8% The market price of the bonds is $104,100 Date Accounts Debit Credit 1-Jan Cash $104,100 Premium on Bonds Payable _______ Bonds payable $100,000 Carrying Amount: Bonds Issued at a Premium Bonds are shown at their carrying amount on the balance sheet Carrying amount = Face value Plus Premium Balance Balance Sheet January 1 Long-Term Liabilities: Bonds Payable $100,000 Plus: Premium $ 4,100 $104,100...
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57 - Cash received from bond issue is greater than face...

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