12. Which of the following is nota valid statement regardingbonds payable? *a. Bonds issued by an entityrepresent a financial liability andshall be measured at amortizedcost using the effective interestmethod.b. The market price of a bond issueis the present value of its principalamount plus the present value of allfuture interest payments, bothdiscounted at the market rate ofinterest when the bonds wereissued.c. Bonds that mature at a singledate are called term bonds.d. The amortization of a bondpremium increases both therecorded interest expense andamortized cost.

Solution: "The amortization of a bond premium increases both the recorded interest expense and…

Answered: Which of the following is not alid…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 10MC: The effective-interest method of bond amortization finds the difference between the ________ times...

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15. The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n) deduction from net income. investing activity. addition to net income. financing activity.
5. The premium on bonds payable account is shown on the statement of financial position as a.a contra asset. b.a subtraction from a long-term liability. c.an addition to a long-term liability. d.a reduction of an expense.
12. All of the following statements regarding available-for-sale debt securities are true, except for a. premiums and discounts are amortizedb. interest revenue may be debited at the time of acquisitionc. the securities will be valued using the lower of cost or market methodd. realized gain or loss is the difference between the amortized cost of the bonds and theproceeds from their sale
Bond premium should be reported in the statement of financial position A. at the present value of the future reduction in bond interest expense due to the premium. B. as a direct addition to the face amount of the bonds. C. as a deferred credit. D. along with other premium accounts such as those resulting from share capital transactions.
When the effective cost of debt is greater its the nominal cost, *a. The entity records a discount on the bond payable.b. the initial net measurement of the bond is more than the face value.c. The net proceeds is more than the face value.d. The interest expense is less than the interest payments.
What is the effective interest rate of a bond or other debt instrument measured at amortized cost? Select the correct response: The interest rate currently charged by the entity or by others for similar debt instruments (i.e., similar remaining maturity, cash flow pattern, currency, credit risk, collateral, and interest basis). The interest rate that exactly discounts estimated future cash payments or receipts through the expected life of the debt instrument or, when appropriate, a shorter period to the net carrying amount of the instrument. The basic, risk-free interest rate that is derived from observable government bond prices The stated coupon rate of the debt instrument.
q3. For accounting purposes, interest expense recognized on bonds payable should be based on theA. effective interest rate, considering the issue price and the transaction costs.B. nominal interest rate.C. rate stated on the face of the bonds.D. market rate of interest on the reporting date.
21.1 Evaluate the following statements: S1. Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to the nominal rate multiplied by the beginning-of-period carrying amount of the bonds. S2. ABC is using an effective interest method in amortizing any premium or discount arising from the bond issue. In case the entity incurs printing costs and legal fees associated with the issuance of bonds, the total costs may be lumped into the discount, or netted against the premium. a. False, False b. True, False c. True, True d. False, True
A bond issue sold at a premium is valued on the statement of financial position at the a. maturity value. b. maturity value plus the unamortized portion of the premium. c. cost at the date of investment. d. maturity value less the unamortized portion of the premium.
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.
12. How would the amortization of discount on bonds payable affect the carrying amount of bond and net income, respectively? * a. Increase and Descrease b. Increase and Increase c. Decrease and Increase d. Decrease and Decrease
16. Bond issue costs a. should be amortized by the straight-line method to interest expenseb. should be included in bond discount or subtracted from bond premium and amortized by the effective-interest methodc. should be subtracted from bonds payable on the balance sheetd. should not be amortized and should be written off at bond retirement

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