Question

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.

Answer 1

Answer:

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.