A corporation issues for cash $1,000,000 of 10%, 20-year bonds interest payable annually, at a time when the market rate is 12%. The straight-line method is adopted for the amortization of bond discount or premium. What is true?
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the unamortized discount decreases from its balance at issuance date to a zero balance at maturity
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If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?
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Annual interest expense will remain the same over the life of the bonds with the amortization of bond discount.
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Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
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The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity.
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Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
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The amount of annual interest paid to bondholders remains the same over the life of the bonds.
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If the market rate of interests greater than the contract rate of interests the bond will sell
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At a discount
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The interest expense recorded on an interest payment date is increased
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by the amortization of discount on bonds payable
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If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount
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greater than the face value
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If bonds are issued at a premium, the stated interest rate is
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higher than the market rate of interest
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When callable bonds are redeemed below the carrying amount
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gain on redemption of bonds is credited
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The balance in Premium on Bonds Payable**
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would be added to the related bonds payable on the balance sheet****
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Any unamortized premium should be reported on the balance sheet of the issuing corporation as
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an addition to the face amount of the bonds in the liabilities section
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The balance in Discount on Bonds Payable that is applicable to bonds due in three years would be reported on the balance sheet in the section entitled
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long-term liabilities
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Creditors are interested in the times interest earned ratio because they want to****
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know what rate of interest the corporation is paying****
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The times interest earned ratio is computed as****
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Income before income taxes + Interest expense ÷ Interest expense***
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When the effective interest method is used, the amortization of the bond premium****
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increases interest expense each period****
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If bonds payable are not callable, the issuing corporation
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can repurchase them
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When the bonds are sold for more than their face value, the carrying amount of the bonds is equal to
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face value plus the unamortized premium
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The balance in Discount on Bonds Payable***
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should be reported on the balance sheet as an asset because it has a debit balance
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The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest. ***
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false
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The present value of the periodic bond interest payments is the value today of the amount of interest to be received at the end of each interest period.
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true
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