Author Question: After all posting to the general ledger is completed, the accounts receivable, sales tax payable, ... (Read 41 times)

sheilaspns · **on:** Jul 5, 2018

After all posting to the general ledger is completed, the accounts receivable, sales tax payable, and sales accounts in the general ledger are up to date.
a. True
b. False
Indicate whether the statement is true or false

Question 2

Explain the difference between a bond discount and a bond premium.

What will be an ideal response?

Sarahjh · **Reply #1 on:** Jul 5, 2018

Answer to Question 1

True

Answer to Question 2

Interest rates affect the value of bonds when they are sold to investors. If the market rate of interest is higher than the rate of interest offered by a bond, then investors will purchase the bond only at a discount. A discount means that a bond is selling for less than its face value. The amount of the discount is the difference between the face value of the bond and the selling price of the bond. The unamortized discount is subtracted from the face value of the bond to calculate the bond's carrying value. Interest expense is increased by amortization of a discount.

If the market rate of interest is lower than the rate of interest offered by a bond, then investors will pay a premium for the bond. A premium means that a bond is selling for more than its face value. The amount of the premium is the difference between the selling price and the face value of a bond. The unamortized premium is added to the face value of the bond to calculate the bond's carrying value. Part of each interest payment is paying back the premium to bondholders, so amortization of a premium decreases interest expense.