On August 31, Jackson Enterprises issued bonds with a par value of $750,000 and a stated interest rate of 8%. Interest is payable semiannually on June 30 and December 31. If the proceeds from the issue amounted to $760,000, the bonds were likely

A

sold at a higher effective interest rate.

B

sold at a discount.

C

sold at a premium.

D

issued at par plus accrued interest.

Question

Business

Nyasia Short

4 June, 17:11

On August 31, Jackson Enterprises issued bonds with a par value of $750,000 and a stated interest rate of 8%. Interest is payable semiannually on June 30 and December 31. If the proceeds from the issue amounted to $760,000, the bonds were likely

A

sold at a higher effective interest rate.

B

sold at a discount.

C

sold at a premium.

D

issued at par plus accrued interest.

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Answers (1)

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Aimee Johnson · Answer 1

Sold at Premium (C)

Explanation:

Here, the proceeds from the bond issue ($760,000) is higher than the par value of the bond ($750,000), meaning that it has been issued at premium.

The excess of cash received over the par value of the bond should be credited to premium on Bond payable Account.

Then, the excess of effective interest charged over interest paid will be used to write-off the premium on bond payable for the period of the bond.