Question

Determine whether the following bonds payable will be issued at face value, at a premium, or at a discount:

3. A 10% bonds payable is issued when the market interest rate is 8%.

4. A 10% bonds payable is issued when the market interest rate is 10%.

5. A 10% bonds payable is issued when the market interest rate is 12%.

Short answer

A bond issued at a discount is less than its face value.

Step-by-step solution

Definition of bonds

The bonds are the type of long-term liabilities because a company issues these to fulfil its long-term money needs. Generally, bonds are issued by large size companies.

 Issue the bonds  

3. The following bonds are issued at a discount because the market interest rate of the bonds is less than the face value interest rate. Hence, these bonds are issued at a discount.

4. The following bonds are issued at face value because the market interest rate of the bonds and the face value interest rate of the bonds are the same. Hence, these bonds are issued at face value.

5. The following bonds are issued at a premium because the market interest rate is more than the face value of the bonds. Hence, the given bonds are issued at a premium.