Bonds and Long-Term Debt Quiz
6 multiple-choice questions with answers and explanations · 3 medium, 3 hard
Issuing bonds at a premium or discount, the effective-interest method, convertible bonds, and the current portion of long-term debt.
- 1Bond Issued at a DiscountA company issues $500,000 face value bonds for $480,000 because the market interest rate exceeds the bonds' stated rate. The $20,000 difference is recorded as:medium
- 2Amortizing a Bond PremiumA $100,000 bond with a 7% stated rate is issued for $104,500 because the market rate is below 7%. Over the life of the bond, the $4,500 premium is:medium
- 3US GAAP: Amortizing a Bond DiscountUnder US GAAP, may a company amortize a bond discount on a straight-line basis rather than by the effective interest method?medium
- 4Bonds Issued at a Discount — Effective InterestBonds with a face value of $100,000 and a 6% annual coupon are issued for $95,000 to yield 8%. Using the effective-interest method, interest EXPENSE for the first year is:hard
- 5Effective Interest MethodA $200,000, 8% bond is issued for $190,000 when the market rate is 9%. Under the effective interest method, interest expense for the first period is calculated as:hard
- 6US GAAP: Straight-Line Amortization of a Bond DiscountA $200,000, 5-year bond is issued for $190,000. Using straight-line amortization, the discount amortized each year and its effect on interest expense is:hard