Bond Premium

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  • #193555
    Anonymous
    Inactive

    On May 1, 20X2, Bolt Corp. issued 11% bonds in the face amount of $1,000,000 that mature on May 1, 20X12. The bonds were issued to yield 10%, resulting in bond premium of $62,000. Bolt uses the effective interest method of amortizing bond premium. Interest is payable semiannually on November 1 and May 1. In its October 31, 20X2, balance sheet, what amount should Bolt report as unamortized bond premium?

    a. 62,000

    b. 60,100

    c. 58,900

    d. 58,590

    answer b.


    I understand how the answer is calculated, but since the question is asking for the balance sheet amount on October 31, and since the interest is not paid until November 1, why is the bond premium reduced? Shouldn’t it remain the same, and not change until November 1?

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  • #663128
    mw798
    Member

    Remember, this is accrual accounting.

    #663129
    Lidis
    Participant

    Hi

    premium and discount accounts are viewed as valuation accounts.

    The unamortized premium on bonds payable will have a credit balance that increases the carrying amount (or the book value) of the bonds payable

    The unamortized discount on bonds payable will have a debit balance and that decreases the carrying amount (or book value) of the bond payable

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