Straight-line amortization of discount or premium is simpler, but the effective-interest method is the theoretically preferred method.
Answer: True
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Accounting Chapter 10
- Assume the bonds are retired early at the call price. Determine the loss on the bond call.
- A $100,000, 10-year, 8% bond that pays interest semiannually was sold for $87,539 when the market rate of interest was 10%. Using the effective-interest method, determine how much of the interest expense, to the nearest dollar, for the second interest period?
- A $100,000, 10-year, 8% bond that pays interest semiannually was sold for $87,539 when the market rate of interest was 10%. Using the effective-interest method, determine how much of the bond discount would be credited to Discount on Bonds Payable at the end of the first interest period?
- A corporation with a high times interest earned ratio means that:
- What is the selling price (to the nearest dollar) of 4-year bonds with a par value of $200,000 and an annual coupon rate of 8% that are sold when the market rate of interest is 12%?
- When the premium on bonds is amortized, the amount of recognized interest expense is
- Accounting for a zero coupon bond is similar to
- Bonds with a par value of $500,000 are sold at discount for $481,000. Other than the Cash account, what other account is debited.
- A bond issued and supported by the general credit standing of the corporation, rather than supported with pledged assets, is called
- Which of the following may be a disadvantage to issuing bonds to raise long-term capital?
- When using the effective-interest method of amortization, the book value of the bonds changes by what amount on each interest payment date?
- When using the effective-interest method of amortization, interest expense reported in the income statement is impacted by the
- To determine whether a bond will be sold at a premium, discount, or face value, one must know which of the following pairs of information?
- A bond with a face value of $100,000 was issued for $113,500 on January 1, 2009. The stated rate of interest is 8 percent and the market rate of interest was 10 percent when the bond was sold. Interest is paid annually. How much interest will be paid on December 31, 2009?
- Which of the following is false when a bond is issued at a premium?
- Which of the following is not an advantage of issuing bonds when compared to issuing additional shares of stock in order to obtain additional capital?
- Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this?
- Scuppers Boat Works, Inc. issued 200 bonds to finance expansion into a new line of designs. The bonds had a total principal of $200,000. The bonds will pay interest semiannually on June 30 and December 31 at a rate of 9% per annum and mature in five years. On January 1, 200A, the day the bonds were issued, similar securities were yielding a rate of 10% per annum. Scuppers' underwriter, Reedham and Quip, purchased the entire issue to resell them to individual investors. Scuppers retained the right to buy back the bonds from the bondholders in two years at a price of $102.
- When scuppers decided to issue the bonds, they would have executed a bond contract, or _____, which spelled out the terms of the bond, and any privileges and covenants.
- The stated rate of interest on the bonds is _____; bondholders will be paid $_____ every _____.
- Use the following information to answer the remaining questions. Scuppers Boat Works, Inc. issued 200 bonds to finance expansion into a new line of designs. The bonds had a total principal of $200,000. The bonds will pay interest semiannually on June 30 and December 31 at a rate of 9% per annum and mature in five years. On January 1, 200A, the day the bonds were issued, similar securities were yielding a rate of 10% per annum. Scuppers' underwriter, Reedham and Quip, purchased the entire issue to resell them to individual investors. Scuppers retained the right to buy back the bonds from the bondholders in two years at a price of $102. The par value of the bond issue is
- Transactions involving bonds would be reported on the statement of cash flows as follows:
- Blazing Lasers Co. retired $400,000 face value of bonds when the discount on bonds payable account had a balance of $32,495. They paid $360,000 to retire the bonds. Blazing Lasers would report a _____ on its income statement.
- The effective interest method of amortizing discount or premium
- When bonds are issued at a premium, interest expense
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