Question

Whirlie Inc. issued $300,000 face value, 10% paid annually, 10-year bonds for $319,251 when the market of interest was 9%. The company uses the effective-interest method of amortization. At the end of the year, the company will record ________.
a credit to cash for $28,733
a debit to interest expense for $31,267
a debit to Discount on Bonds Payable for $1,267
a debit to Premium on Bonds Payable for $1.267

Answer 1

A $1,267 debit to premium on bonds payable. The correct answer is option (D).

What are Premium bonds?

A financial instrument offered by National Investment and Savings are premium bonds (NS&I). You are placed into a monthly prize draw with a chance to win between £25 and £1 million tax free, unlike other investments where you receive interest or a consistent dividend income.

There is no interest generated on Premium Bonds. Instead, a monthly prize drawing for tax-free rewards is funded by the interest rate. Keep in mind that over time, inflation can make your money lose some of its real worth. A bond that trades more than its face value, or one that is more costly than the bond's face value, is referred to as a premium bond. The firm must register the interest expense accounts at the end of the year;

                                                                                      Debit        Credit      

Interest Expenses ( 319,251*9%)                                  28,733  

The premium on Bonds Payable ( 30000-28733)     1,267  

Cash (300,000*10%)                                                                             30,000

To know more about Premium bonds, visit:

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