Chapter 10

Question 1

Coupon rate < Market rate

Answer 1

discount on bonds payable

Question 2

Coupon rate > Market rate

Answer 2

premium on bonds payable

Question 3

Interest Expense

Question 3

Answer 3

Net Book Value (pva+pv value) x Market Rate
of interest in effect when the bond was issued

Question 4

Cash Interest Payment

Question 3

Payment=Think of what youll use for PVA

Answer 4

Coupon rate x face amount
of the bonds (this is always the same, make sure that if its semi annually you divide by 1/2)

Question 5

J/E for bonds payable at the time of issuance

Question 3

Answer 5

Cash dr
Premium/discount dr or cr
Bonds Payable cr

Question 6

J/E for bonds after a year (and then do another year)

Answer 6

Interest expense dr
Premium/discount dr or cr
Cash cr (same as “payment” used for PVA)

Interest expense dr (1st cash value-last interest expense x market %)
Premium/discount dr or cr
Cash cr (same as “payment” used for PVA)

Question 7

PVA

Answer 7

Question 8

PV

Answer 8

Question 9

Determine the values in the Bond Payable Account and the Discount on B/P Account

Answer 9

Carrying amount:
Face value
add/deduct: unamortized premium=/ discount
= NBV
Cash Required (fv x par)
loss/gain

Question 10

JE to retire bonds
(specify what to do at loss & gain and premium & discount)

Answer 10

Bonds Payable dr
Loss dr Gain cr
Cash cr
Premium dr Discount cr