Question
On December 31, 2012, a company issues 16%, 10-year bonds with a par value of $100,000. Interest is paid on June 30 and December 31. The bonds are sold to yield a 14% annual market rate at an issue price of $110,592. Use this information to answer questions 7 through 9:
7. Are these bonds issued at a discount or a premium? Explain your answer.
8.Using the straight-line method to allocate bond interest expense, the issuer records the second interest payment (on December 31, 2013) with a debit to Premium on Bonds Payable in the amount of (a) $7,470, (b) $530, (c) $8,000, or (d) $400.
9.How are these bonds reported in the long-term liability section of the issuer’s balance sheet as of December 31, 2013?