Hinds Enterprises issued bonds at a premium. They traditionally use the effective interest method of amortization. Therefore, you would expect the earlier years of the bonds to have an interest expense that is greater than the amount of the interest payments. greater than if the straight-line method were used. O the same as if the straight-line method were used. less than if the straight-line method were used.

Hinds Enterprises issued bonds at a premium. They traditionally use the effective interest method of amortization. Therefore, you would expect the earlier years of the bonds to have an interest expense that is greater than the amount of the interest payments. greater than if the straight-line method were used. O the same as if the straight-line method were used. less than if the straight-line method were used.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 18MC: OShea Inc. issued bonds at a face value of $100,000, a rate of 6%, and a 5-year term for $98,000....

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Eros Corp. decided to go into the market to repurchase bonds before their due date. The bonds had a maturity value of $3,500,000. On the date of retirement, the balance on the Discount on Bonds Payable account was $54,700. If Eros purchased the bonds on the open market at a price of 99 to retire the bond, what is the gain or loss on the early extinguishment of the debt?
Which statement is correct when the effective-interest method is used to amortize bond premium or discount? Group of answer choices The interest expense increases each period if the bonds were issued at a premium. The carrying amount at the end of the first year would be highest if the bonds were issued at a discount. The periodic amortization will increase regardless of whether the bonds were issued at either a discount or a premium. The periodic amortization will increase or decrease depending on whether the bonds were issued at a premium or at a discount.
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.
When a company uses the the effective-interest method to amortize a bond discount amortization, the interest expense is equal to a) the market rate multiplied by the beginning-of-period carrying amount of the bonds. b) the market rate of interest multiplied by the face value of the bonds. c) the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d) the stated (nominal) rate of interest multiplied by the face value of the bonds.
Bond issue costs, such as printing fees, legal fees, commissions, etc. are most appropriately accounted for by a. charging them to an expense account in the year the bonds are actually sold. b. debiting them to unamortized bond issue costs, setting them as a deferred charge on the statement of financial position, and amortizing them in a manner similar to bond discount over the life of the bond. c. charging them to an expense account in the year the bonds are originally dated whether or not they are sold in that year. d. considering them in the measurement of the bonds payable.
1. 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…
Briggs and Stratton recently issued debt with issue costs of$5.1 million. How should the costs of issuing these bondsbe accounted for and classified in the financial statements?
Which answer is correct? GAAP requires use of the effective interest method of bond amortization when…. the effective interest rate is less than the straight line rest when the interest expense amount is materially different from the interest expense calculated under the straight-line method there is no material difference between the result produced by the straight line method in comparison with the effective interest method the bond matures in more than 5 years
OShea Inc. issued bonds at a face value of $100,000, a rate of 6%, and a 5-year term for $98,000. From this information, we know that the market rate of interest was ________. A. more than 6% B. less than 6% C. equal to 6% D. cannot be determined from the information given.
One way for a corporation to accomplish long-term financing is through the issuance of long-term debt instruments in the form of bonds. Required: 1. Explain how to account for the proceeds from bonds issued with detachable stock purchase warrants. 2. Contrast a serial bond with a term (straight) bond. 3. For a 5-year term bond issued at a premium, why is the amortization in the first year of the life of the bond different using the interest method of amortization as opposed to the straight-line method? Include in your discussion whether the amount of amortization in the first year of the life of the bond is higher or lower using the interest method as opposed to the straight-line method. 4. When a company sells a bond issue between interest dates at a discount, what journal entry does it make, and how is the subsequent amortization of bond discount affected? Include in your discussion an explanation of how the amounts of each debit and credit are determined. 5. Explain how to account for and classify the gain or loss from the reacquisition of a long-term bond prior to its maturity.
If bonds are issued at a discount and the effective-interest method is used, the amount ofinterest expensea. remains the same over the term of the bonds.b. is less than the cash interest payment.c. increases each period as the bonds approach maturity.d. decreases each period as the bonds approach maturity
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.