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- Select the correct answer to each of the following statements. A. Increase B. Decrease C. Remain Constant 1. The amount of interest expense will _______ each payment period for a bond issued at a discount. 2. When a bond is issued at a discount, the cash interest payment will _________ over the life of the bond. 3. When a bond is issued at a premium, the carrying value of the bond will _______ over the life of the bond.8 Assume an investor purchases bonds at a premium the bonds are to be held as a long-term investment which of the following statement is true regarding the amount of bond interest revenue to be reported over life of the bonds? Group of answer choices The periodic amount of bond interest revenue will always be less than the periodic amount of cash received The periodic amount of bond interest revenue will always be above the periodic amount of cash received for interest The periodic amount of bond interest revenue will always be equal to the periodic amount of cash received The pattern of the periodic amt. of bond interest rev. is an increasing amount1. The amortization of a discount on an investment in bonds measured at amortized cost A. Increases the carrying amount of the investment B. Is the excess of interest income over interest received or receivable. C. Is recorded directly to the invesment account D. All of these 2. Which of the following statements is correct for an investment in term bonds that was acquired at a premium? A. The amortized cost of the bonds increases annually. B. The current and non current portions of the bonds as of the reporting date are reported separately. C. The interest income recognized each year is higher than the amount of interest received/ receivable. D. The effective interest rate is lower than the stated rate of the bonds. 3. The rate used in computing for interest receivable on debt instruments measured at amortized cost is the A. Nominal rate B. Effective interest rate C. Yield rate D. Celeb rate 4. The transaction costs of acquiring an investment measured at…
- 14. If bonds are redeemed on maturity date, any premium or discount * a. Is carried forward and written off in the same manner as that used prior to the maturity date. b. Should be used to calculate the O gain or loss resulting from the maturity of the bonds. c. Should be written off directly to a O bond retirement account as the bond will be redeemed. d. Will be fully amortized as its amortization period is designed to coincide with the life of the bond issue.b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the straight-line method. Round to the nearest dollar. Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Receivable 3. Determine the total interest expense for Year 1. Round to the nearest dollar. 4. Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest? 5. Compute the price of $23,854,460 received for the bonds by using Present value at compound interest, and Present value of an annuity. Round to the nearest dollar. Your total may vary slightly from the price given due to rounding differences. Present value of the face amount Present value of the semiannual interest payments Price received for the bondsEnumerate the following; 32. Provides for recognition of an equal amount of premium or discount amortization each period. 33. Bonds that mature in one lump sum at a specified future date. 34. Bonds that provide for conversion into some other security at the option of the stockholder. 35. Bonds that mature in a series of installments at future dates. 36. The difference between the face value and the sales price when bonds are sold below their face value. 37. Bonds for which assets are pledged to guarantee repayment. 38. Obligations that are not expected to be paid in cash within one year or the normal operating cycle. 39. Bonds that do not bear interest but instead are sold at significant discounts providing the investor with a total interest payoff at maturity. 40. Costs incurred by the issuer for legal services, printing and engraving, taxes, and underwriting in connection with the sale of a…
- 3. Which of the following is true when the effective interest method of amortizing bond premium is used? * a. Interest expense remains the same for each period. b. Interest rate varies from period to period. c. Interest expense increases each period. d. Interest expense decreases each period. 4. The gain or loss on the retirement of bonds prior to maturity should be * a. recognized in income of the period of retirement. b. credited or debited to share premium account. c. amortized over the remaining term of the bond. d. ignored.. Which of the following are true for a bond maturing on a single date when the effective interest method of amortizing bond discount is used?a. interest expense as a percentage of the bond’s carrying amount varies from period to periodb. interest expense increases each six-month period c. interest expense remains constant each six-month periodd. effective interest rate is used to compute for the periodic interest a and b c and d a and d b and cThe interest rate printed on the bond certificate a. is generally paid monthly. b. All of these. c. is called the dividend yield. d. remains the same until maturity.
- 6. For an investor who plans to purchase a bond maturing in one year, the primary consideration should be ________. A) retained earnings B) face value C) yield to maturity D) net incomeFrom page 9-2 of the VLN, how do you determine the annuity cash flow (the bond interest payment) from an annual bond? Group of answer choices A. Bond payable x stated rate B. Bond liability x stated rate C. Bond payable x market rate D. Bond liability x market rate13. An investor purchases bonds with a face value of $100,000. Payment for thebonds includes (a) a premium (b) accrued interest rate and (c) brokeragefees. How would each of these charges be recorded and what dispositionwould ultimately be made of each of these charges??