Answered: Does the straight-line or effective…

Does the straight-line or effective interest method produce an interest expense allocation that yields a constant rate of interest over a bond’s life? Explain.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 3Q

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Does the straight-line or effective interest method produce an interest expense allocation that yields a constant rate of interest over a bond’s life? Explain.

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Does interest expense increase or decrease when a bond premium is amortized?
Does issuing a bond at a discount increase or decrease interest expense over the life of the bond?
The effective-interest method of bond amortization finds the difference between the ________ times the ________ and the ________ times the ________. A. stated interest rate, principal, stated interest rate, carrying value B. stated interest rate, principal, market interest rate, carrying value C. stated interest rate, carrying value, market interest rate, principal D. market interest rate, carrying value, market interest rate, principal
When a bond sells at a discount, the carrying value ________ after each amortization entry. A. increases B. decreases C. stays the same D. cannot be determined
When the effective interest rate method is used, the amortization of the bond premium
If interest rates rise after a bond issue, what would happen to the bond's price and YTM? Does the time to maturity affect the extend to which interest rates changes affect the bond price? (Please give an example)
If bonds issue at a discount, is the stated interest rate less than, equal to, or more than the market interest rate? Explain.
If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true? Group of answer choices Total interest expense will increase over the life of the bonds with the amortization of bond discount. Total interest expense will increase over the life of the bonds with the amortization of bond premium. Total interest expense will decrease over the life of the bonds with the amortization of bond discount. Total interest expense will remain the same over the life of the bonds with the amortization of bond discount.
When the effective-interest method is used, the amount of bond discount amortized eachinterest period is equal to thea. amount of interest expense less the cash paid for interest.b. amount of interest expense plus the cash paid for interest.c. face value of the bond times the market interest rate at the date of issue.d. face value of the bond times the stated interest rate.
If interest rates rise after a bond issue, what will happen to the bond’s price and YTM? Doesthe time to maturity affect the extent to which interest rate changes affect the bond’s price?(Again, an example might help you answer this question.)