Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

Financial Accounting

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

If an issuer sells bonds at a premium, which of the following statements is correct?

The bonds are sold at exactly their face (par) value.

The bonds are sold for less than their face (par) value.

The bonds are sold for more than their face (par) value.

The bonds do not pay any interest to investors.

Previous problemNext problem

Verified step by step guidance

Understand the concept of bond premium: Bonds are sold at a premium when the market interest rate is lower than the coupon rate of the bond. This means investors are willing to pay more than the face (par) value of the bond to receive higher interest payments.

Analyze the given options: The first option states that bonds are sold at exactly their face value, which is incorrect for bonds sold at a premium. The second option states that bonds are sold for less than their face value, which describes a discount, not a premium. The fourth option states that bonds do not pay any interest, which is incorrect as bonds typically pay interest to investors.

Focus on the correct statement: The third option, 'The bonds are sold for more than their face (par) value,' aligns with the definition of bonds sold at a premium. This occurs because the coupon rate is higher than the prevailing market interest rate.

Relate the concept to accounting entries: When bonds are sold at a premium, the issuer records the cash received as a debit, the bond payable at its face value as a credit, and the premium on bonds payable as an additional credit. This premium is amortized over the life of the bond.

Summarize the reasoning: Bonds sold at a premium reflect the higher value investors place on the bond due to its favorable interest rate compared to the market rate. This results in the bond being sold for more than its face value.