#1
Which accounting method is commonly used for bond amortization?
Effective interest rate method
ExplanationThe effective interest rate method is commonly used for bond amortization.
#2
Which financial statement would typically include information about bond amortization?
Income statement
ExplanationThe income statement typically includes information about bond amortization.
#3
Which of the following statements about a bond issued at par is true?
It has no bond premium or discount
ExplanationA bond issued at par has no bond premium or discount.
#4
Which of the following is an example of a bond issued by a government entity?
Municipal bond
ExplanationA municipal bond is an example of a bond issued by a government entity.
#5
Which financial statement reports the carrying value of bonds on the balance sheet?
Balance sheet
ExplanationThe balance sheet reports the carrying value of bonds.
#6
What is the purpose of using the effective interest rate method in bond accounting?
To allocate interest expense evenly over the bond's term
ExplanationThe purpose of using the effective interest rate method in bond accounting is to allocate interest expense evenly over the bond's term.
#7
What is the primary purpose of bond amortization?
To allocate bond discount or premium over its term
ExplanationAmortization allocates bond discount or premium over its term.
#8
How does a bond premium affect the interest expense over the bond's life?
Increases interest expense
ExplanationA bond premium increases interest expense over the bond's life.
#9
What is the impact of amortizing a bond discount on interest expense over time?
Interest expense increases
ExplanationAmortizing a bond discount increases interest expense over time.
#10
What is the formula for calculating bond amortization under the effective interest rate method?
(Face Value - Present Value) * Market Interest Rate
ExplanationBond amortization under the effective interest rate method is calculated using the formula: (Face Value - Present Value) * Market Interest Rate.
#11
In bond accounting, what does the term 'carrying value' refer to?
The book value of the bond on the balance sheet
ExplanationThe carrying value refers to the book value of the bond on the balance sheet in bond accounting.
#12
What is the impact of amortizing a bond premium on the bondholder's interest income?
Interest income decreases
ExplanationAmortizing a bond premium decreases the bondholder's interest income.
#13
What is the journal entry to record the issuance of a bond at a premium?
Debit Cash, Credit Bond Premium
ExplanationIssuing a bond at a premium involves debiting cash and crediting bond premium.
#14
How does a bond discount impact the carrying value of the bond?
Decreases carrying value
ExplanationA bond discount decreases the carrying value of the bond.
#15
What is the primary reason for amortizing a bond premium or discount?
To accurately reflect the cost of borrowing over time
ExplanationAmortizing a bond premium or discount accurately reflects the cost of borrowing over time.
#16
When using the effective interest rate method, how is interest expense calculated?
Based on the market interest rate at issuance
ExplanationInterest expense is calculated based on the market interest rate at issuance when using the effective interest rate method.
#17
When does a bond with a fixed interest rate sell at a premium?
When market interest rates are lower than the bond's coupon rate
ExplanationA bond with a fixed interest rate sells at a premium when market interest rates are lower than the bond's coupon rate.
#18
What is the impact of amortizing a bond discount on the carrying value of the bond over time?
Carrying value increases
ExplanationAmortizing a bond discount increases the carrying value of the bond over time.