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 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.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EA: Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the...

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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.
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.
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 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
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-
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.
Salem Company has outstanding $100 million of 7% bonds, due in 7 years, and callable at 104.The bonds were issued at par and are selling today at a market price of 94.The amortization of a bond discount: A. Increases the carrying value of a bond and increases interest expense. B. Increases the carrying value of a bond and decreases interest expense. C. Decreases the carrying value of a bond and increases interest expense. D. Decreases the carrying value of a bond and decreases interest expense.
If a company issues $100,000 Face Value, 10 year bonds with a contractural interest rate of 6%, which of the following situations could occur?a. Bonds will be sold at a premium when the market rate of interest is 7%b. Bonds will be sold at a discount when market rate is of interest 7%c. Bonds will be sold at face value when market rate of interest is 7%d. The issue of bonds cannot be sold when market rate is 7%
Find the Macaulay duration and the modified duration of a 15-year, 9.0% corporate bond priced to yield 7.0%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 8.0%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 8.0%. How does this price change compare to that predicted by the modified duration? Explain the difference. The Macaulay duration is nothing years. (Round to two decimal places.) The modified duration is nothing years. (Round to two decimal places.) If market yields rose to 8.0%, the change would be nothing%. (Round to two decimal places.) Using annual compounding, the price of this bond in 1 year if rates do rise to 8.0% is $nothing. (Round to the nearest cent.) The actual percentage change in bond price is nothing%. (Round to two decimal places.) Which of the following is true? (Select the best choice below.) A.…
Find the Macaulay duration and the modified duration of a 15-year, 7.5% corporate bond priced to yield 5.5%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 6.5%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 6.5%. How does this price change compare to that predicted by the modified duration? Explain the difference.
As an alternative, you are contemplating to incorporate and issue a bond to raise the capital instead of borrowing from the bank. Required part C Is there an advantage to issuing bonds rather than borrowing money from the bank? Suppose you decide to go this route and you issue a $130,000, 9%, 5-year bonds for $115,375 when the market rate is 12%. The bonds pay interest semi-annually. Prepare an amortization table for the first three payments. The premium is amortized using the straight-line method. Prepare journal entries for the following transactions. July 1, 2021: entry to record issuing the bonds. 31, 2021: entry to record payment of interest to bondholders. 31, 2021: entry to record amortization of premium.
A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market rate of 7%. Interest is paid annually. What is the amount of interest the bondholders will receive at the end of the year?