Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Question
Chapter 9, Problem 14MCQ
To determine
Concept introduction:
Bonds:
Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date. Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.
To choose:
The correct Statement about discount amortization using effective interest rate method.
Expert Solution & Answer
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Students have asked these similar questions
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.
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
When the effective-interest method is used to amortize notes premium or discount, the periodic amortization will
A. increase if the notes were issued at a discount.B. decrease if the notes were issued at a premium. C. increase if the notes were issued at either a discount or a premium.D. increase if the notes were issued at a premium.
Chapter 9 Solutions
Cornerstones of Financial Accounting
Ch. 9 - Prob. 1DQCh. 9 - What is the difference between a bond and a note?...Ch. 9 - What does the face (or Par) value of a bond...Ch. 9 - Prob. 4DQCh. 9 - What is the stated or coupon rate of a bond?Ch. 9 - Prob. 6DQCh. 9 - How does a secured bond differ from an unsecured...Ch. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQ
Ch. 9 - Prob. 11DQCh. 9 - Prob. 12DQCh. 9 - Prob. 13DQCh. 9 - Prob. 14DQCh. 9 - Prob. 15DQCh. 9 - Prob. 16DQCh. 9 - Prob. 17DQCh. 9 - Prob. 18DQCh. 9 - Prob. 19DQCh. 9 - Prob. 20DQCh. 9 - Prob. 21DQCh. 9 - Prob. 22DQCh. 9 - Which of the following statements regarding bonds...Ch. 9 - Prob. 2MCQCh. 9 - If bonds are issued at 101.25, this means that a...Ch. 9 - What best describes the discount on bonds payable...Ch. 9 - The premium on bonds payable account is shown on...Ch. 9 - When bonds are issued by a company, the accounting...Ch. 9 - Prob. 7MCQCh. 9 - Bonds in the amount of $100,000 with a life of 10...Ch. 9 - Prob. 9MCQCh. 9 - Prob. 10MCQCh. 9 - Prob. 11MCQCh. 9 - Prob. 12MCQCh. 9 - Prob. 13MCQCh. 9 - Prob. 14MCQCh. 9 - Prob. 15MCQCh. 9 - Prob. 16MCQCh. 9 - Which of the following statements regarding the...Ch. 9 - Willow Corporations balance sheet showed the...Ch. 9 - Prob. 19MCQCh. 9 - McLaughlin Corporations balance sheet showed the...Ch. 9 - (Appendix 9A) The bond issue price is determined...Ch. 9 - Cornerstone Exercise 9-22 Reporting Long-Term Debt...Ch. 9 - Cornerstone Exercise 9-23 Issuance of Long-Term...Ch. 9 - Cornerstone Exercise 9-24 Issuance of Long-Term...Ch. 9 - Prob. 25CECh. 9 - Cornerstone Exercise 9-26 Debt Issued at Par On...Ch. 9 - Prob. 27CECh. 9 - Cornerstone ExerciseDebt Issued at a Premium...Ch. 9 - Cornerstone Exercise 9-29 Debt issued at a Premium...Ch. 9 - Cornerstone Exercise Debt Issued at a Premium...Ch. 9 - Prob. 31CECh. 9 - Cornerstone Exercise Bonds Issued at a Discount...Ch. 9 - Prob. 33CECh. 9 - Prob. 34CECh. 9 - Prob. 35CECh. 9 - Prob. 36CECh. 9 - Prob. 37CECh. 9 - Prob. 38CECh. 9 - Cornerstone Exercise Ratio Analysis Watterson...Ch. 9 - Cornerstone Exercise Ratio Analysis Blue...Ch. 9 - Cornerstone Exercise Ratio Analysis Red...Ch. 9 - Prob. 42CECh. 9 - Cornerstone Exercise (Appendix 9A) Bond Issue...Ch. 9 - Prob. 44BECh. 9 - Brief Exercise Issuance of Long-Term Debt Natalie...Ch. 9 - Prob. 46BECh. 9 - Prob. 47BECh. 9 - Brief Exercise Debt Issued at Par On January 1,...Ch. 9 - Prob. 49BECh. 9 - Prob. 50BECh. 9 - Brief Exercise Debt Issued at a Premium (Straight...Ch. 9 - Prob. 52BECh. 9 - Prob. 53BECh. 9 - Prob. 54BECh. 9 - Prob. 55BECh. 9 - Brief ExerciseBonds Issued at a Premium (Effective...Ch. 9 - Prob. 57BECh. 9 - Brief Exercise Bonds issued at a Premium...Ch. 9 - Brief Exercise Cost of Debt Financing Topple...Ch. 9 - Prob. 60BECh. 9 - Brief Exercise Ratio Analysis Whitten Corporations...Ch. 9 - Brief ExerciseRatio Analysis Valiant Corporation...Ch. 9 - Brief Exercise Ratio Analysis Trevor Corporation...Ch. 9 - Brief Exercise (Appendix 9A) Bond Issue Price On...Ch. 9 - Prob. 65BECh. 9 - Prob. 66ECh. 9 - Exercise Bond Premium and Discount Markway Inc. is...Ch. 9 - Exercise Bonds with Annual Interest Payments Kiwi...Ch. 9 - Exercise Issuance and Interest Amortization for...Ch. 9 - Prob. 70ECh. 9 - Prob. 71ECh. 9 - Exercise Interest Payments and Interest Expense...Ch. 9 - Prob. 73ECh. 9 - Prob. 74ECh. 9 - Prob. 75ECh. 9 - Prob. 76ECh. 9 - Prob. 77ECh. 9 - Prob. 78ECh. 9 - Prob. 79ECh. 9 - Prob. 80ECh. 9 - Prob. 81ECh. 9 - Prob. 82ECh. 9 - Prob. 83ECh. 9 - Prob. 84ECh. 9 - ExerciseInstallment Notes ABC bank loans $250,000...Ch. 9 - Prob. 86ECh. 9 - Cost of Debt Financing Stinson Corporations cost...Ch. 9 - Cost of Debt Financing Diamond Companys cost of...Ch. 9 - Ratio Analysis Rising Stars Academy provided the...Ch. 9 - Prob. 90ECh. 9 - Problem Reporting Long-Term Debt Fridley...Ch. 9 - Prob. 92PSACh. 9 - Prob. 93PSACh. 9 - Prob. 94PSACh. 9 - Prob. 95PSACh. 9 - Prob. 96PSACh. 9 - Prob. 97PSACh. 9 - Prob. 98PSACh. 9 - Prob. 99PSACh. 9 - Prob. 91PSBCh. 9 - Prob. 92PSBCh. 9 - Prob. 93PSBCh. 9 - Prob. 94PSBCh. 9 - Prob. 95PSBCh. 9 - Prob. 96PSBCh. 9 - Prob. 97PSBCh. 9 - Prob. 98PSBCh. 9 - Prob. 99PSBCh. 9 - Long-Term Debt and Ethics You arc the CFO of...Ch. 9 - Debtholders receive note contracts, one for each...Ch. 9 - Debtholders receive note contracts, one for each...Ch. 9 - Prob. 102.1CCh. 9 - Prob. 102.2CCh. 9 - Prob. 102.3CCh. 9 - Prob. 102.4CCh. 9 - Leverage Cook Corporation issued financial...Ch. 9 - Prob. 103.2CCh. 9 - Prob. 103.3CCh. 9 - Prob. 103.4CCh. 9 - Prob. 104.1CCh. 9 - Prob. 104.2CCh. 9 - Prob. 104.3CCh. 9 - Prob. 104.4CCh. 9 - Prob. 105.1CCh. 9 - Prob. 105.2CCh. 9 - Prob. 105.3CCh. 9 - Prob. 105.4CCh. 9 - Prob. 105.5CCh. 9 - Comparative Analysis: Under Armour, Inc., versus...Ch. 9 - Prob. 105.7CCh. 9 - Prob. 106.1CCh. 9 - Prob. 106.2CCh. 9 - Prob. 106.3C
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Similar questions
- When bonds are issued at a discount and the effective interest method is used for amortization, at each successive interest payment date, the interest expense: Select one: a. Increases b. Is equal to the change in market value of the bonds c. Decreases d. Is equal to the change in carrying value of the bonds e. Stays the samearrow_forward4.What is the effective interest method of amortization? a. It is an amortization method that provides for the recognition of an equal amount of amortization of premium or discount each period. b. It is an amortization method that provides for the recognition of an equal rate of amortization of premium or discount each period. c. It is computed as the effective rate (constant rate) multiplied by the face value of the note. d. It is the same as the straight line method of amortization.arrow_forwardWhich of the following is true when the mortgage loan is an amortizing loan? a. At the beginning of the term of the loan the largest part of the payment is a paydown of principal, but a payments progress a rising portion is applied to interest payments. b. Interest payments and paydown of principal remain constant during the loan. c. At the beginning of the term of the loan the largest part of the payment is interest, but a payments progress a rising portion is applied to the paydown of principal. d. Paydown of principal occurs at the end of the loan. e. None of the above.arrow_forward
- When the total interest charged is linearly proportional to the initial amount of the loan, the interest rate and the number of interest periods, the interest is said to be a.) Effective b.) Continuous Compounding c.) Simple d.) Compoundingarrow_forwardWhich of the following refers to the ratio of the interest to the principal repayment on an annual unpaid loan? A. it increases as the loan gets older О в. it decreases as the loan gets older O c. it remains constant over the life of the loan O D. it changes according to the level of market interest rates during the life of the loanarrow_forwardWhich 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.arrow_forward
- When bonds are issued at a premium and the effective interest method is used for amortization, at each successive interest payment date, the interest expense: Select one: a. Is equal to the change in market value of the bonds b. Decreases c. Stays the same d. Increases e. Is equal to the change in carrying value of the bondsarrow_forwardStatement 1: In accounting for notes with unrealistic interest rates, any difference between the amount of interest paid to the creditor and the interest expense recognized for the period is the amount of discount or premium amortized during the period.Statement 2: If the market rate of interest is greater than the nominal rate of the note, there will be a premium on notes payable to be recognized.Statement 3 : The amortized cost of the notes payable increases every time there is an amortization of premium. All statements are true. Only one statement is true. Two statements are true. None of the statements are true.arrow_forwardWhen 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.arrow_forward
- 1. If bonds are sold at a discount and the straight-line method of amortization is used, interest expense in earlier years will: (A) Exceed what is would have been had the effective interest rate method of amortization been used. (B) Be less than what it would have been had the effective interest rate method of amortization been used. (C) Be the same as it would have been had the effective interest rate method of amortization been used. (D) None of the above.arrow_forwardOver the duration of the loan, the total loan payment is... ... gradually increasing for "amortizing loans with fixed total payments". This statement is [ Select ] ["true", "false"] . ... gradually increasing for "amortizing loans with fixed principal payments". This statement is [ Select ] ["true", "false"] .arrow_forwardAdd-on Interest is a method of calculating the interest to be paid on a loan by combining the principal amount borrowed and the total interest due into a single figure, then multiplying that figure by the number of periods for repayment. Is it True or False?arrow_forward
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