Description
- What effect will this have on interest expense if the bonds are issued at a premium and a discount?
- If you issue $10,000,000, 30 year callable bonds at a 5% premium, with a call feature at 10 years, what effect will this have on interest expense the first ten years? Provide journal entries and a comparative table to explain the differences.
- If you issue $10,000,000, 30 year callable bonds at a 5% discount, with a call feature at 10 years, what effect will this have on interest expense the first ten years? Provide journal entries and a comparative table to explain the differences.
Explanation & Answer
Attached.
Students Name
Instructors Name
Course Name
Date
Bonds issued at Premium and Discount
If the bonds are issued at premium:
When the bond is issued t premium the carrying value of the bond is higher than the face value of
the bond. On the first day the bond is issued using premium the cash account is debited with
$10,500,000, the bonds payable account is credited with $10,000,000 and the Premium on Bonds
Payable account is credited with $500,000.
Journal entries
Date
Account
Debit
Credit
Issue date
Cash
$10,500,000
Bonds payable
$10,000,000
Premium on bonds payable
$500,000
After the ten years the premium on bonds payable will be credited will be debite...
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