The result of using the effective interest rate method of amortization of the discount on bonds is that a.the interest expense for each amortization period is constant. b.the amount of interest expense decreases each period. c.a constant interest rate is charged against the debt carrying value. d.the cash interest payment is greater than the interest expense

The result of using the effective interest rate method of amortization of the discount on bonds is that a.the interest expense for each amortization period is constant. b.the amount of interest expense decreases each period. c.a constant interest rate is charged against the debt carrying value. d.the cash interest payment is greater than the interest expense

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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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
1.As a loan is paid off, the debt portion of the fixed payment increases debt and interest portions do not change each interest period monthly payment increases interest potion of the fixed payment increases 2.When a bond payable is measured using the fair value model, the interest expense is computed by multiplying the face value and nominal rate present value and effective rate face value and effective rate present value and nominal rate 3.Which is true when a bond payable is issued at a discount? Proceeds from issuance is lower than the face amount. The nominal rate is higher than the effective rate. The carrying amount of the bonds decreases each period. The interest paid is higher than the interest expense.
In the amortization schedule for premium on bonds payable, [choose the incorrect one] the carrying amount of the notes payable declines eventually to face amount the total effective interest over the term of maturity is equal to the amount of the premium plus the total cash interest paid the interest expense is less with each successive interest payment the reduction in the premium is more with each successive payment
18. The use of the effective-interest method to amortize a discount associated with the acquisition of an investment in bonds results in a. the recognition of more interest revenue over the life of the investment than the use of the straight-line method b. the recognition of a constant amount of interest revenue each period c. the recognition of less interest revenue over the life of the investment than the use of the straight-line method d. the recognition of a varying amount of interest revenue each period
Which is true when a bond payable is issued at a discount? Proceeds from issuance is lower than the face amount. The nominal rate is higher than the effective rate. The carrying amount of the bonds decreases each period. The interest paid is higher than the interest expense.
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…
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-
When bonds are issued at a premium, what happens to the carrying value and interest expense each period over the life of the bonds? a. Carrying value and interest expense increase.b. Carrying value and interest expense decrease.c. Carrying value decreases and interest expense increases.d. Carrying value increases and interest expense decreases.
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.
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.
Amortizing the discount on bonds payablea. increases the recorded amount of interest expense.b. reduces the semiannual cash payment for interest.c. reduces the carrying value of the bond liability.d. is necessary only if the bonds were issued at more than face value
5. If a company sells its bonds at more than face value, the effective interest rate is a. less than the contract interest rateb. more than the contract interest ratec. equal to the contract interest rated. more than the market interest rate