4.4 Accounting for Bonds Payable

Question 1

When the amount received from sales of the bonds at issuance exceeds the face value of the bonds, _____ arises

Answer 1

A premium on bonds payable

Question 2

On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on December 31.

What is the amount of interest Evangel will pay at the end of the first year?

Answer 2

$9,000

The annual cash payment is the face amount of the bonds times the stated rate
($100,000 x 9%)