Final answer:
When the company's bonds mature, they will record the repayment with a debit to Bonds Payable in the amount of $50,000. If a bond has a lower interest rate than the market rate, it will be sold at a discount to attract investors. The present value of bond payments is affected by changes in market interest rates.
Step-by-step explanation:
When a company issues bonds, they are essentially taking out long-term loans which they agree to pay back at a future date, known as the bond's maturity. At the maturity date, the company will pay back the principal amount of the bonds. When the market interest rate differs from the bond's stated rate, the bonds may be sold at a premium or discount to their face value. In this student's question, the bonds have a face value of $50,000 but were sold for $60,000 because the bonds' interest rate of 9% is higher than the market rate of 8%.
At the bond's maturity date, the company will record the repayment of the principal by a debit to the Bonds Payable account in the amount of the face value which is $50,000. The entry to record the bond's repayment would be a debit to Bonds Payable and a credit to Cash.
For calculations regarding bond value and interest, let's consider a simple two-year bond with a face value of $3,000 and an interest rate of 8%. If the present value discount rate is also 8%, the bond is worth its face value in the present because the interest rate matches the discount rate. However, if interest rates in the economy rise to 11%, the bond's present value would decrease, because the fixed interest rate payments of 8% are less attractive compared to the new higher market rate of 11%. The present value of each interest payment and the principal repayment must be calculated using the present value formula.