B. A contra account is an account that is deducted on another account, and has a normal balance that is opposite to its related account. should be reported on the balance sheet as a deduction from the related bonds payable, If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be. Contra Liability Account: A liability account that is debited in order to offset a credit to another liability account. A liability account with a credit balance associated with bonds payable that were issued at more than the face value or maturity value of the bonds. b. reported as a reduction of the bond liability. c. debited to a deferred charge account and amortized over the life of the bonds. Revenue account. Discount on bonds payable is a contra-liability account, which is subtracted from bonds payable. 37. True False QUESTION 2 A bond issue with a face amount of $500,000 bears interest at the rate of 10%. c. is considered to be a reduction in the cost of borrowing. t 90 days, which means that every 14, a new a discount on bonds payable quizlet result is figured out. Flashcards. 2. premium on bonds payable definition A liability account with a credit balance associated with bonds payable that were issued at more than the face value or maturity value of the bonds. B) is a contra account. reported as a reduction of the bond liability. Bonds payable should be reported as a long-term liability on the balance sheet of the issuing corporation at: A. How would the carrying value of a bond payable be affected by amortization of each of the following? Under the straight-line amortization method, interest expense on a bond sold at a premium is equal to the, D. interest paid minus bond premium amortization, A call provision in a bond contract may specify that the issuing company. Which of the following is a contra account? Be able to describe when a bond is issued at a discount, and prepare journal entries for its issuance. This is done through the amortization of premium on bonds payable. Match. Which of the following statements is true? These bonds will sell at a price that is: A Equal to $500,000 B. Sariyeela PLUS. Premium on bonds payable definition bond issued at premium accounting detailed with balance sheet cliffs notes. These bonds will sell at a price that is: A Equal to … At the time, the market rate is lower than 8%, so investors pay $1,100 for the bond, rather than its $1,000 face value. If we assume that investors pay $4,900,000 for the bonds, the difference of $100,000 will be recorded by the issuer as a debit to the contra liability account Discount on Bonds Payable. Face value less any unamortized discount or plus any unamortized premium. The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest. Premium on Bonds Payable is a contra liability account that is increasing. A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. Delaney amortizes bond discounts using the​ straight-line method. Understand how bonds are presented on a balance sheet, whether issued at par, a premium, or discount. B. The price of a bond issue often differs from its face value. Face value less any unamortized discount or plus any unamortized premium. c. debited to a deferred charge account and amortized over the life of the bonds. More than $500,000 C. Less than $500,000 D. A contra liability account is a liability account where the balance is expected to be a debit balance.Since a debit balance in a liability account is contrary to the normal credit balance, the account is referred to as a contra liability account.. A. Use the straight-line method to account for a bond issued at a premium. help please. Discount on Bonds Payable is a contra liability account. b. reported as a reduction of the bond liability. B. face value of the bond plus related premium or minus related discount. Premium on bonds payable (or bond premium) occurs when bonds payable are issued for an amount greater than their face or maturity amount. Write. Premium on bonds payable definition bond issued at premium accounting detailed with balance sheet cliffs notes. The​ company's fiscal year ends The premium on bonds payable is amortized to interest expense over the life of the bonds and results in a reduction of interest expense. premium on bonds payable definition. Premium on bonds payable is: an adjunct account. Premium on Bonds Payable: A) has a debit balance. See the answer. The times-interest-earned ratio is calculated by which of the following? C. Patents. The premium on bonds payable is amortized to interest expense over the life of the bonds and results in a reduction of interest expense. Which of the following describes the characteristics of a convertible bond? The entry eliminates the $9,800 book value of the bonds from the accounts by debiting Bonds Payable for $10,000 and crediting Discount on Bonds Payable for $200 (remember, discount on bonds payable is a contra-liability account and has a normal debit balance). QUESTION 1 The premium on bonds payable is a contra liability account. C. increases the cash interest payment. 3. The difference is premium/discount on bonds payable, which will impact the bonds carrying value presented in the balance sheet. Since a debit balance in a liability account is contrary to the normal credit balance, the account is referred to as a contra liability account. b. is a contra account. Start studying Exam 3 review. debit of $18,000 to Premium on Bonds Payable. Which of the following describes the characteristics of a callable bond? Created by. PLAY. https://quizlet.com/498765008/accounting-chapter-9-flash-cards Duncan Corporation reported net income of $140,000 , income before taxes of $238,000 and interest expense of $28,000. What are the three components of a bond? Increase in discount on bonds payable (contra-liability): debit 2. Use the following table, if needed. c. debited to a deferred charge account and amortized over the life of the bonds. Some people might use the term adjunct accounts for both the Discount on Bonds Payable … When graphing the carrying value of a premium bond vs the par value of a premium bond, the lines intersect at the maturity date of the bond. CODES (3 months ago) 7 new a discount on bonds payable quizlet results have been found in the las. The periodic interest payment on a bond is based upon the market rate of interest. A. The current market rate of interest is 11%. Face amount, interest rate, interest payment dates, maturity dates. Gravity. Which of the following is a contra account? a. The excess $100 is classified as a premium on bonds payable, and is amortized to expense over the remaining 10 year life span of the bond. Bond prices and interest rates. Premium on bonds payable is the excess amount by which bonds are issued over their face value. Serves to reduce interest expense on the income statement B. serves to increase interest expense on the income statement. If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is. Has A Credit Balance. The straight-line method is adopted for the amortization of bond discount or premium. Here is where the term adjunct account is used. True False QUESTION 2 A bond issue with a face amount of $500,000 bears interest at the rate of 10%. Discount On Bonds Payable Quizlet. D. is a contra account to bonds payable If $500,000 of 10-year bonds, with interest payable semiannually are sold for $494,040 based on (1) the present value of $500,000 due in 20 periods at 5% plus (2) the present value of twenty $25,000 payments at 5%, the nominal or contract rate and the market rate of interest for the bonds are both 10%. Premium on Bonds Payable: has a debit balance. Liabilities: Bond Payable. B. the coupon rate of interest exceeded the market rate. All about Bonds! Since a credit balance is the normal balance for a liability account, the account Premium on Bonds Payable cannot be referred to as a contra account. C. Earnings before interest and taxes divided by interest expense. If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is. Issuing Bonds Payable at a Premium After posting, the bond accounts have the following balances: Smart Touch Learning reports these bonds payable on the balance sheet as follows: Straight-Line Amortization of Bond Premium The beginning premium is $4,100, and there are 10 semiannual interest periods during the bonds’ five-year life. 1. The generally accepted method of accounting for gains or losses from the early extinguishment of debt is to compute them as True False. d. is deducted from bonds payable … Premium on bonds payable is a. a contra account. The net effect of this amortization is to reduce the amount of interest expense associated with the bonds. What is a contra liability account? Bonds Payable is a liability account that is increasing. B. Unearned revenue. Although it may not seem so, the $103,769 is the $105,000 from above and the $3,679 is the $5,000 from above. Discount on bonds payable is amortized over the life of bonds payable using the effective interest method. Test. Spell. The market rate of interest is lower than the stated interest rate, Bonds will always fall into all but which one of the following categories? A. A. Callable or convertible. TRUE When a bond is sold at a discount, the subsequent amortization of the discount results in an increase in the book value of the bond because the discount on bonds payable is a contra-liability account. To determine the six-month interest payment amount on a bond, you would take one-half of the market rate times the face value of the bond. D. Face value less any unamortized discount or plus any unamortized premium. debited to a deferred charge account and amortized over the life of the bonds. On January​ 1, 2017​, Delaney Corporation issued five​-year, 2% bonds payable with a face value of $2,600,000. The effective interest rate method produces a constant dollar amount of interest expense to be reported each interest period. Which of the following is a contra account a Premium on bonds payable b from MIS 201 at Saudi Electronic University STUDY. This problem has been solved! Contra revenue account. On December​ 31, 2019​, Delaney retired the bonds early by purchasing them at a market price of 95. The bonds were issued at 94 and pay interest on January 1 and July 1. This is caused by the bonds having a stated interest rate that is higher than the market interest rate for similar bonds. C) is considered to be a reduction in the cost of borrowing. Equity account. Bonds Payable. Which of the following is not a method of disclosing pertinent information? Adjunct Account: An account in financial reporting that increases the book value of a liability account. If we assume that investors pay $4,900,000 for the bonds, the difference of $100,000 will be recorded by the issuer as a debit to the contra liability account Discount on Bonds Payable. The premium on bonds payable A. Terms in this set (22) Bond. Over the life of the bonds the debit balance in Discount on Bonds Payable will decrease as it is amortized to Interest Expense. (2 days ago) Discount on bonds payable is a contra account to bonds payable that decreases the value of the bonds and is subtracted from the bonds payable in the long‐term liability section of the balance sheet. Bonds may be converted to common stock at the option of the bondholder. d. an adjunct account. (10) Premium on bonds payable is a. a contra account. Current bond market price. What is Premium on Bonds Payable? These differences are a result of a financial concept called the time value of money, which states that $1 today is worth more than $1 in the future. To determine the discount on a bond the issuing value is deducted from the par value of the bonds. Discounts on Bonds payable should be presented in the financial statements of the bond issuer as a(n), The market interest rate on bonds is higher than the coupon rate when bonds sell. 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