Which of the following occurs when a bond's stated interest rate is less than the market interest rate? The bond will be issued at a premium. The bond will be issued at maturity value. The bond will be issued at a discount. The bond will be issued at par.

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Which of the following occurs when a bond's stated interest rate is less than the market interest rate? The bond will be issued at a premium

Accounting Mar 19, 2021

Which of the following occurs when a bond's stated interest rate is less than the market interest rate?

1. The bond will be issued at a premium.
2. The bond will be issued at maturity value.
3. The bond will be issued at a discount.
4. The bond will be issued at par.

Expert Solution

Answer:

c .

Step-by-Step explanation

Option C is the correct answer.

When the bond's stated interest rate is less than the market interest rate then the bond shall will be issued at a discount.

As the issuer of the bond shall pay a lesser interest rate as compared to the market , therefore the bond shall be issued at a discount.

Journal entry when bonds are issued at a discount.

Cash A/c Dr.

Discount on Bond Payable A/c Dr.

To Bonds Payable A/c

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