t14 Which of the following is incorrect about bonds sold at a discount? *The balance of bonds payable account increases each year.The discount on bonds payable account decreases each year.At maturity date, the face value and carrying amount of the bonds will be equal.The carrying amount of the bond increases each year.

When the bonds are issued at discount: Carrying value of bonds increases over period to the equal…

Answered: Which of the following is incorrect…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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.
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 of the following statements is true: Straight line interest method on bonds gives a higher interest in the first year than effective interest if bonds are issued at a discount; When bonds are issued for more than par, straight line interest method gives higher interest expense in the last year than using effective interest rate; Straight line interest yields a constant interest expense but a changing interest rate. Multiple Choice All of these are false I) and III) are true but II) is false All of these are true I) and II) are true but III) is false I) is true but II) and III) are false
An investor buys a 5-year bond and a 10-year bond. Which statement is true? The interest rate risk is negligible given recent actions by the Federal Reserve. The interest rate risk is higher for the 5-year bond. The interest rate risk is the same for both bonds. The interest rate risk is higher for the 10-year bond.
Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?I. Longer-term bonds have more interest rate risk than shorter-term bonds.II. Shorter-term bonds have more interest rate risk than longer-term bonds.III. Longer-term bonds have more reinvestment rate risk than shorter-term bonds.
The interest rate on one-year Treasury bonds is 0.4 percent, the rate on two-year T-bonds is 0.8 percent, and the rate on three-year T-bonds is 1.1 percent. Using the expectations theory, compute the expected one-year interest rates in (a) the second year (Year 2 only) and (b) the third year (year 3 only).
. Which of the following are true for a bond maturing on a single date when the effective interest method of amortizing bond discount is used?a. interest expense as a percentage of the bond’s carrying amount varies from period to periodb. interest expense increases each six-month period c. interest expense remains constant each six-month periodd. effective interest rate is used to compute for the periodic interest a and b c and d a and d b and c
The interest rate on one-year Treasury bonds is 0.8 percent, the rate on two-year T-bonds is 0.9 percent, and the rate on three-year T-bonds is 1.0 percent. Using the expectations theory, compute the expected one-year interest rate in the second year (Year 2 only). Round your answer to one decimal place. % Using the expectations theory, compute the expected one-year interest rate in the third year (Year 3 only). Round your answer to one decimal place. %
On July 1, Somers Inc. issued $300,000 of 12%, 10-year bonds when the market rate was 14%. The bonds paid interest semi-annually. A. Assuming the bonds sold at 59.55, what was the selling price of the bonds? $ B. Explain why the cash received from selling this bond is different from the $300,000 face value of the bond. Investors can earn a higher rate/lower rate? in other similar bonds so the bond sells at a Premium/discount?
Consider the following information for a period of years: Arithmetic Mean Long-term government bonds 7.6% Long-term corporate bonds 7.7 Inflation 4.6 What is the real return on long-term government bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is the real return on long-term corporate bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
The following information is about the spot rates on Treasury securities and BBB corporate bond: Spot 1 Year Spot 2 Year Spot 3 Year Treasury 3% 4.75% 5.5% BBB Corporate Debt 7.5% 9.15% 10.5% Question: Using the implied forward rates, estimate the annual marginal default probability for the one-year BBB corporate debt in year 3?
The question that says “a $4000, 6% bond is sold at 93. When the bond is issued, the cash account will be increased by:

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