Issuing Bonds at a Premium

Issuing Bonds at a Premium - Issuing Bonds at a Premium...

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Issuing Bonds at a Premium Helpful Hint Both a discount and a premium account are valuation accounts. A valuation account is one that is needed to value properly the item to which it relates. We can illustrate the issuance of bonds at a premium by now assuming the Candlestick Inc. bonds described above sell at 102 (102% of face value) rather than at 98. The entry to record the sale is: Bonds Payable Premium on Bonds Payable (To record sale of bonds at a premium) Candlestick adds the premium on bonds payable to the bonds payable amount on the balance sheet, as shown in Illustration 10-11 .
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Illustration 10-11 Statement presentation of bond premium The sale of bonds above face value causes the total cost of borrowing to be less than the bond interest paid because the borrower is not required to pay the bond premium at the maturity date of the bonds. Thus, the premium is considered to be a reduction in the cost of borrowing that reduces bond interest expense over the life of the bonds. The total cost of borrowing $102,000
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.

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Issuing Bonds at a Premium - Issuing Bonds at a Premium...

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