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When bonds are issued at a discount and the effective interest method is used for

When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:

a.Increases.

b.Decreases.

c.Remains the same.

d.Is equal to the change in book value.

 

 

95. When bonds are issued at a premium and the effective interest method is used for amortization, at each interest payment date, the interest expense:

a.Increases.

b.Decreases.

c.Remains the same.

d.Is equal to the change in book value.

 

 

96. An amortization schedule for a bond issued at a discount:

a.Has a carrying value that decreases over time.

b.Is contained in the balance sheet.

c.Is a schedule that reflects the changes in bonds payable over its term to maturity.

d.All of the other answers are correct.

 

 

97. An amortization schedule for a bond issued at a premium:

a.Has a carrying value that increases over time.

b.Is contained in the balance sheet.

c.Is a schedule that reflects the changes in bonds payable over its term to maturity.

d.All of the other answers are correct.

 

Use the following information to answer the next 4 questions:

 

Discount-Mart issues $10 million in bonds on January 1, 2015. The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule for the bonds:

 

 

Date

Cash

Paid

Interest

Expense

Increase in

Carrying Value

Carrying

Value

1/1/2015

 

 

 

$8,640,967

6/30/2015

$300,000

$345,639

$45,639

8,686,606

12/31/2015

300,000

347,464

47,464

8,734,070

6/30/2016

300,000

349,363

49,363

8,783,433

12/31/2016

300,000

351,337

51,337

8,834,770

 

 

98. What is the stated annual rate of interest on the bonds?  (Hint: Be sure to provide the annual rate rather than the six month rate.)

a.3%.

b.4%.

c.6%.

d.8%.

 

 

99. What is the market annual rate of interest on the bonds?  (Hint: Be sure to provide the annual rate rather than the six month rate.)

a.3%.

b.4%.

c.6%.

d.8%.

 

 

100. What is the interest expense on the bonds in 2015?

a.$693,103.

b.$600,000.

c.$345,639.

d.$347,464.

 

 

101. What is the carrying value of the bonds as of December 31, 2016?

a.$8,834,770.

b.$8,686,606.

c.$8,734,070.

d.$8,783,433.

 

 

Use the following information to answer the next 6 questions:

 

Tony Hawk’s Adventure (THA) issued callable bonds on January 1, 2015. THA's accountant has projected the following amortization schedule from issuance until maturity:

 

 

Date

Cash

Paid

Interest

Expense

Increase in Carrying Value

Carrying Value

1/1/2015

 

 

 

$194,758

6/30/2015

$7,000

$7,790

$790

195,548

12/31/2015

  7,000

  7,822

  822

196,370

6/30/2016

  7,000

  7,855

  855

197,225

12/31/2016

  7,000

  7,889

  889

198,114

6/30/2017

  7,000

  7,925

  925

199,039

12/31/2017

  7,000

  7,961

  961

200,000

 

 

102. THA issued the bonds:

a.At par.

b.At a premium.

c.At a discount.

d.Cannot be determined from the given information.

 

 

103. THA issued the bonds for:

a.$200,000

b.$194,758.

c.$242,000.

d.Cannot be determined from the given information.

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