58 - $4,164 Premium on Bonds Payable $336 Cash ($100,000 x...

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Interest Expense on Bonds Issued at a Premium The company pays interest based on only the face value even though it received more than face value. Interest Expense = Carrying Amount of Bond x Market Interest Rate Premium is amortized (reduced) over the bond term. Recording Interest on Bonds Issued at a Premium 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 Premium is debited for the difference between the expense and payment Date Accounts Debit Credit 1-July Interest Expense (104,100 x 4%)
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Unformatted text preview: $4,164 Premium on Bonds Payable $336 Cash ($100,000 x 4.5%) $4,500 Retiring Bonds Before Maturity Interest rates may change causing companies to retire bonds early Borrowing rates may become less than interest rate on bonds Some bonds are callable Company can pay off bonds a specific price Convertible bonds Bondholders may exchange bonds for companys stock Offers investor: Assured receipt of interest and principal on bonds Opportunity for gains on stock Investors will accept a lower interest rate on bonds because of the attractiveness of this feature....
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This note was uploaded on 06/15/2011 for the course ACCT 23020 taught by Professor Dorff,p during the Spring '08 term at Kent State.

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