The Premium on Bonds Payable account is amortized and reduces the Interest Expense compared to the interest payment to. over the entire term of the bond when using the effective interest method. b. only in the year in which the bond matures. с. only in the year in which the bond was issued. d. during the first few years of the bond term when the straight-line method is used.

The Premium on Bonds Payable account is amortized and reduces the Interest Expense compared to the interest payment to. over the entire term of the bond when using the effective interest method. b. only in the year in which the bond matures. с. only in the year in which the bond was issued. d. during the first few years of the bond term when the straight-line method is used.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. If bonds are sold at a discount and the straight-line method of amortization is used, interest expense in earlier years will: (A) Exceed what is would have been had the effective interest rate method of amortization been used. (B) Be less than what it would have been had the effective interest rate method of amortization been used. (C) Be the same as it would have been had the effective interest rate method of amortization been used. (D) None of the above.
15. When bonds are sold at a premium, if the annual straight-line amortization amount is compared to the annual effective interest amortization amount over the life of the bond issue, the annual amount of the straight-line amortization of premium is: A. Higher than the effective interest amount in the early years and less than the effective interest amount in the later years. B. Less than the effective interest amount in the early years and more than the effective interest amount in the later years. C. Higher than the effective interest amount every year. D. Less than the effective interest amount every year. -3-
22) The effective interest rate method of amortizing bonds allocates the same amount of interest expense to each period. TRUE FALSE
Bonds that are made payable to whoever holds them; also called unregistered bonds. The contract between the bond issuer and the bondholder; it identifies the rights and obligations of the parties. Bonds that mature at different dates with the result that the entire debt is repaid gradually over a number of years. An obligation requiring a series of periodic payments to the lender. 1. Installment Note 2. Coupon Bonds Bonds that have interest coupons attached to their certificates; the bondholders detach the coupons when they mature and present them to a bank or broker for 3. Market Rate 4. Bond Indenture 5. Convertible Bonds collection. 6. Bearer Bonds Bonds that can be exchanged by the bondholders for a fixed 7. Term Bonds number of shares of the issuing corporation's common stock. 8. Unsecured Bonds 9. Serial Bonds An accounting protocol that allocates interest 10. Effective Interest Rate Method expense over the life of the bonds in a way that yields a constant rate of interest. The…
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Which statement is true? The carrying amount of the bonds will decrease each year if the bonds were issued at a premium. Total interest expense will increase each year if the bonds are issued at a premium and the effective interest method of amortization is used. Total interest expense will increase each year if the bonds are issued at a discount and the straight-line method of amortization is used. The carrying amount of the bonds will decrease each year if the bonds were issued at a discount.
Compute bond proceeds, amortizing premium by interest method, and interest expense DATA Face amount of bonds Contract rate of interest Term of bonds, years Market rate of interest Interest payment REQUIRED: a. Compute the amount of cash proceeds from the sale of the bonds. $41,000,000 11% 3 9% Semiannual b. Compute the amount of premium to be amortized for the first semiannual interest payment period, using the interest method. c. Compute the amount of premium to be amortized for the second semiannual interest payment period, using the interest method. d. Compute the amount of the bond interest expense for the first year. Using formulas and cell references from the problem data, perform the required analysis. Formulas entered in the green cells show in the orange cells. Transfer amounts to CNOWv2 for grading. a. PV of cash proceeds b. Premium amortized for the 1st interest payment period c. Premium amortized for the 2nd interest payment period d. Interest expense for the 1st year…
11. Under the straight-line amortization method, interest expense on a bond sold at a premium is equal to the a. interest paid plus bond premium amortizationb. interest rate times the book value of the bondsc. interest rate times the face value of the bondsd. interest paid minus bond premium amortization
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