Answered: If bonds issue at a premium, what…

If bonds issue at a premium, what happens to the carrying value of bonds payable and the amount recorded for interest expense over time?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 8Q: Does issuing a bond at a discount increase or decrease interest expense over the life of the bond?

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Question

If bonds issue at a premium, what happens to the carrying value of bonds payable and the amount recorded for interest expense over time?

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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What kind of account is the Discount on Bonds Payable? What kind of account is the Premium on Bonds Payable?
When bonds are redeemed before maturity, how is the gain or loss on redemption determined? Why does the calculation differ for bonds issued at face value, at a premium, and at a discount?
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The premium on bonds payable account is shown on the balance sheet as A contra asset. A reduction of an expense. An addition to a long-term liability. A subtraction from a long-term liability.
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