Question

On February 28, 2009, $5,000,000 of 6%, 10-year bonds payable, dated December 31, 2008, are issued. Interest on the bonds is payable semiannually each June 30 and December 31. If the total amount received (including accrued interest) by the issuing corporation is $5,060,000, which of the following is correct?
a) The bonds were issued at a premium.
b) The amount of cash paid to bondholders on the next interest date, June 30, 2009, is $300,000.
c) The amount of cash paid to bondholders on the next interest date, June 30, 2009, is $50,000.
d) The bonds were issued at a discount.

Answer 1

Answer:

a) The bonds were issued at a premium.

Explanation:

Given that

There are the bonds of $5,000,000

And, if the total amount received that involved the accrued interest also so the amount of the bond is $5,060,000

This means the bond is issued at premium as the value is increased i.e. fro m $5,000,000 the value is now $5,060,000

So, the option a is correct

And, the rest of the options would be incorrect