Question

QUESTION 4

Sundance Company has Bonds Payable of $2,000,000 and Premium on Bonds Payable of $100,000. Assuming the bonds are due in 10 years, what
amount should Sundance report as the carrying value of the bonds in long-term liabilities on its year-end balance sheet?
O A. $2,100,000
O B. $1,900,000
OC. $100,000
O D. $2,000,000
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Answer 1

the correct answer is D. $2,000,000.

if you look at the question, this has two parts.

1st part is the long term bonds of $2,000,000 and the 2nd part is the payable interest on bonds $100,000.

these two are both Liabilities, yet they are not recorded in the same account and we use 2 separate accounts for recording purposes. they are the Long term bond account and the payable interest account.

payable interest represents a short term liability and a cost that will be incurred by the business in the short run while the bond account represents the long term balance of the bonds.

Step-by-step explanation:

Answer 2

A. $2,100,000

Step-by-step explanation:

A bond carrying value is = Face value+ Premium (If issued at a premium)

As we know that a bond can be issued at par, premium, or discount. If a bond is issued at par, its carrying value will be the same as its face value. However, if it is issued at a premium, the premium amount will also be added to its face value, and total will be the carrying value.

Therefore, $2,000,000 + $100,000 = $2,100,000, option A is the answer.