Homework Answers
The effective interest rate is also called as market rate. It is the investor's yield maturity. When the effective interest rate is higher/lower as compared bond coupon rate then, the bonds were issued at a discount/premium. The Discount/premium is then amortised over the period of bond by using effective interest rate method. Under this method, interest expense is derived by multiplying the bond carrying value with the effective interest rate applicable when the bonds were issued. The difference between the interest expense and actual interest paid is the discount/(premium) which will be amortised. Interest Expense will increase/decrease when the bonds were issued at discount/premium.
In the given question, the bonds were issued at face value, the interest expense will remain the same.
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When bonds are sold at their face amount (no discount, no premium) and the effective interest...
ACC206: Financial Reporting 3.0 1. When bonds are sold at a discount and the effective interest...
ACC206: Financial Reporting 3.0 1. When bonds are sold at a discount and the effective interest method is used, at each subsequent interest payment date, which of the following is true? a. The cash paid for interest is less than the effective interest expense. b. The cash paid for interest is equal to the effective interest expense. c. The cash paid for interest is more than if the bonds had been sold at a premium. d. The cash paid for...
36. If bonds are issued initially at a premium and the effective-interest method of amortization is...
36. If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be A) greater than if the straight-line method were used. B) greater than the amount of the interest payments. C) the same as if the straight-line method were used. D) less than if the straight-line method were used. 37. Stockholders' equity is generally classified into two major categories: A) contributed capital and appropriated capital. B) appropriated...
When bonds are issued at a discount and interest expense is recorded at the effective interest...
When bonds are issued at a discount and interest expense is recorded at the effective interest rate, interest expense in the earlier years of the term to maturity will be Less than the cash interest payments made. Less than if the straight-line method were used. Greater that if the straight-line method were used. The same as if the straight-line method were used.
When bonds are sold at a premium, if the annual straight-line amortization amount is compared to...
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: Multiple Choice Higher than the effective interest amount in the early years and less than the effective interest amount in the later years. Higher than the effective interest amount every year. Less than the effective interest amount in the early years...
For the issuer of 20-year bonds, the amount of amortization using the effective interest method would...
For the issuer of 20-year bonds, the amount of amortization using the effective interest method would decrease each year if the bonds are sold at a: Discount Premium No No Yes ojo No Yes Yes Yes No Multiple Choice O Option A Option A Option B O Optionc Option D
C) debit to interest Expense D) credit to Interest Expense 9) Under the effective-interest method of...
C) debit to interest Expense D) credit to Interest Expense 9) Under the effective-interest method of amortization, the cash payment on each interest paymer date will: A) remain the same for each interest period B) decrease if bonds are issued at a premium C) increase if bonds are issued at par D) increase if bonds are issued at a discount 10) Current liabilities fall into two categories, which are referred to as: A) contra liabilities and contingent liabilities B) contingent...
On January 1, 2017, Bobcat Company sold 12% bonds having a face value of $300,000 to...
On January 1, 2017, Bobcat Company sold 12% bonds having a face value of $300,000 to yield 10% market rate. The bonds are dated January 1, 2017 and mature January 1, 2022 (5 year term), with interest payable quarterly (April 1, July 1, October 1, and January 1) each year. Instructions Prepare complete bond amortization schedules for Bobcat using the Excel templates on the following tabs. Tab 1: Assume Bobcat allocates interest and unamortized discount or premium on the EFFECTIVE-INTEREST...
361) When bonds are issued at a premium and the effective interest method is wsed for smontiation each subsequent interest payment date, the cesh paid is: A) More than if the bonds had been sold...
361) When bonds are issued at a premium and the effective interest method is wsed for smontiation each subsequent interest payment date, the cesh paid is: A) More than if the bonds had been sold at a discount B) Greater than the interest expense C) Less than the interest expense, D) Equal to the interest expense. 362) Of the following inventories I) Raw Materials Inventory, 2) Work in Process lnventory,3) Finished Goods Inventory, how many turn into Cost of Goods...
9) Under the effective-interest method of amortization, the cash payment on each interest pas date will:...
9) Under the effective-interest method of amortization, the cash payment on each interest pas date will: A) remain the same for each interest period B) decrease if bonds are issued at a premium C) increase if bonds are issued at par D) increase if bonds are issued at a discount 10) Current liabilities fall into two categories, which are referred to as: A) contra liabilities and contingent liabilities B) contingent liabilities and non contingent liabilities C) liabilities of a known...
Bond Amortization = Bond Discount or Premium / Number of Interest Periods Interest Paid = Face...
Bond Amortization = Bond Discount or Premium / Number of Interest Periods Interest Paid = Face Amount of Bonds x Stated Interest Rate Interest Expense = Interest Paid + Discount ( or – Premium) Amortization On October 1, 2018 ABC issued 5%, 10-year bonds with a face value of $4,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. What is interest expense for 2018? Assume ABC Company...
36. If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be A) greater than if the straight-line method were used. B) greater than the amount of the interest payments. C) the same as if the straight-line method were used. D) less than if the straight-line method were used. 37. Stockholders' equity is generally classified into two major categories: A) contributed capital and appropriated capital. B) appropriated...
For the issuer of 20-year bonds, the amount of amortization using the effective interest method would decrease each year if the bonds are sold at a: Discount Premium No No Yes ojo No Yes Yes Yes No Multiple Choice O Option A Option A Option B O Optionc Option D
C) debit to interest Expense D) credit to Interest Expense 9) Under the effective-interest method of amortization, the cash payment on each interest paymer date will: A) remain the same for each interest period B) decrease if bonds are issued at a premium C) increase if bonds are issued at par D) increase if bonds are issued at a discount 10) Current liabilities fall into two categories, which are referred to as: A) contra liabilities and contingent liabilities B) contingent...
361) When bonds are issued at a premium and the effective interest method is wsed for smontiation each subsequent interest payment date, the cesh paid is: A) More than if the bonds had been sold at a discount B) Greater than the interest expense C) Less than the interest expense, D) Equal to the interest expense. 362) Of the following inventories I) Raw Materials Inventory, 2) Work in Process lnventory,3) Finished Goods Inventory, how many turn into Cost of Goods...
9) Under the effective-interest method of amortization, the cash payment on each interest pas date will: A) remain the same for each interest period B) decrease if bonds are issued at a premium C) increase if bonds are issued at par D) increase if bonds are issued at a discount 10) Current liabilities fall into two categories, which are referred to as: A) contra liabilities and contingent liabilities B) contingent liabilities and non contingent liabilities C) liabilities of a known...
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