Final answer:
Bonds can be issued at a discount or premium. In these situations, Gray Co. has a bond premium of $1,500, Bush, Inc. has a bond discount of $4,140, Oak, Inc. has a bond premium of $5,190, and Willow Co. has a bond discount of $3,630. The correct option is A. Gray Co. issued $60,000 of 6 percent bonds at 102 1/2
Step-by-step explanation:
When bonds are issued, they can either be issued at a discount or at a premium. A bond discount occurs when the bond's issue price is below its face value, while a bond premium occurs when the issue price is above the face value. To calculate the bond discount or premium, we need to compare the issue price to the face value of the bond.
A. Gray Co. issued $60,000 of 6 percent bonds at 102 1/2. The face value of the bond is $60,000, and 102 1/2 is equivalent to 102.5% in decimal form. So, the issue price is $60,000 * 1.025 = $61,500. Since the issue price is higher than the face value, there is a bond premium of $61,500 - $60,000 = $1,500.
B. Bush, Inc. issued $92,000 of 10-year, 6 percent bonds at 95 1/2. The face value of the bond is $92,000, and 95 1/2 is equivalent to 95.5% in decimal form. So, the issue price is $92,000 * 0.955 = $87,860. Since the issue price is lower than the face value, there is a bond discount of $92,000 - $87,860 = $4,140.
C. Oak, Inc. issued $173,000 of 20-year, 6 percent bonds at 103. The face value of the bond is $173,000, and 103 is equivalent to 103% in decimal form. So, the issue price is $173,000 * 1.03 = $178,190. Since the issue price is higher than the face value, there is a bond premium of $178,190 - $173,000 = $5,190.
D. Willow Co. issued $121,000 of 15-year, 7 percent bonds at 97. The face value of the bond is $121,000, and 97 is equivalent to 97% in decimal form. So, the issue price is $121,000 * 0.97 = $117,370. Since the issue price is lower than the face value, there is a bond discount of $121,000 - $117,370 = $3,630.
The correct option is A. Gray Co. issued $60,000 of 6 percent bonds at 102 1/2