On January 1,2011,Nadir Company issued $1,000,000 of 6%,20-year bonds when the market rate of interest was 5%.The bonds pay interest annually on December 31.On its balance sheet at December 31,2011,Nadir will show bonds payable of $1,000,000 ________.

Question

Quizplus · Accepted Answer

When a company issues bonds at a coupon rate higher than the market rate, the bonds are issued at a premium. In this case, the coupon rate (6%) is higher than the market rate (5%), so the bonds were issued at a premium. This premium must be amortized over the life of the bonds, which means that each year, a portion of the premium will be recorded as interest expense. On the balance sheet, the bonds payable will be shown at their face value ($1,000,000) plus the unamortized premium, as of December 31, 2011. Therefore, the answer is D (plus the unamortized premium).

On January 1,2011,Nadir Company Issued $1,000,000 of 6%,20-Year Bonds When