When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will Select one: O a. increase if the bonds were issued at a premium. O b. decrease if the bonds were issued at a premium. O c. increase if the bonds were issued at either a discount or premium.

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will Select one: O a. increase if the bonds were issued at a premium. O b. decrease if the bonds were issued at a premium. O c. increase if the bonds were issued at either a discount or premium.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 11MC: When a bond sells at a discount, the carrying value ________ after each amortization entry. A....

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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
(34) Under the effective - interest method of amortization, the bond cash payment on each interest date is calculated by multiplying the: A. Carrying value of the bonds times the effective - interest rate for the appropriate time period. B. Face value of the bonds times the stated interest rate for the appropriate time period. C. Face value of the bonds times the effective - interest rate for the appropriate time period. D. Carrying value of the bonds times the stated interest rate for the appropriate time period.
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…
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
9.An entity uses the effective interest method in amortizing bond premium. Which of the following is incorrect regarding the bond premium amortization? Amortization increases over the life of the bonds. Periodic interest expense is greater than periodic interest payments. Periodic interest expense decreases over the life of the bonds The carrying amount of the bonds decreases over the life of the bonds
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-
11. Premiums or discounts associated with available-for-sale debt securities are a. usually not amortized because the effect of the amortization would usually be immaterialb. amortized to interest revenue over the life of the investmentc. usually recorded in separate accounts at the time the bonds are acquiredd. not treated like premiums or discounts on bonds held to maturity
65 The amortization of a premium on bonds payable Group of answer choices increases the carrying amount of the bond. decreases the balance of the bonds payable account. increases the amount of interest expense reported. increases the cash payment to bondholders.
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