A company receives $102,000 when it issues a bond with a face value of $100,000 and a stated interest rate of 7%.Which of the following statements is correct?
A)The entry to record the issuance will include a credit to Bonds Payable for $102,000.
B)The market interest rate is 7%.
C)The annual interest expense is $7,000.
D)The carrying value of the bonds will be $100,000 at maturity.

Question

Quizplus · Accepted Answer

The entry to record the issuance will include a debit to Cash for $102,000,a credit to Bonds Payable for $100,000,and a credit to Premium on Bonds Payable for $2,000.Bonds are issued at a premium when the market rate of interest is lower than (rather than equal to)the stated rate of interest.The bond amortization makes the Interest Expense smaller than (rather than equal to)the actual interest payment of $7,000 (or $100,000 × 0.07 × 12 / 12)and,at the same time,causes the balance in Premium on Bonds Payable to decline each period.At maturity,the carrying value of a bond will equal its face value.

A Company Receives $102,000 When It Issues a Bond with a Face