Accounting Quiz: Ch 10/G
Interest expense minus interest payable (second column minus first column)
How do you calculate the amortization?
The previous plus or minus (depending on premium or discount) the amortization
How do you calculate the carrying value?
The previous column number minus the amortization amount
How do you calculate the unamortized amount?
Face Value multiplied by contractual rate
How do you find the interest payable amount
Carrying value multiplied by market rate
How to calculate interest expense
Higher
If bonds are issued at a premium, the stated interest rate is (higher or lower) than the market rate of interest
Interest JE
Interest Expense Discount on Bonds Payable Interest Payable
Discount JE
Cash Discount on Bonds Payable Bonds Payable
Premium JE
Cash Premium on Bonds Payable Bonds Payable
Types of bonds
The market value (present value) of a bond is a function of all of the following except: -Dollar amounts to be received -Maturity date -Market interest rate -Types of bonds
Market rate o f interest decreases, then bond prices will go up
The statement "Bond prices vary inversely with changes in the market rate of interest " means that if the -Market rate o f interest increases, the contractual interest rate will decrease -Contractual interest rate increases, then bond prices will go down -Market rate of interest decreases, then bond prices will go up -Contractual interest rate increase" means that if the -Market rate o f interest increases, the contractual interest rate will decrease -Contractual interest rate increases, then bond prices will go down -Market rate of interest decreases, then bond prices will go up -Contractual interest rate increases, the market rate of interest will decreasees, the market rate of interest will decrease
Unamortized
What is the fourth column in the table
Carrying value
What is the last column in the table?
Interest Expense
What is the second column (out of 5) for the table?
Amortization
What is the third column in the table
Straight line
What method for calculating for interest is not allowed by GAAP? Straight-line or Effective interest method of Amortizing
Interest Payable
What will be a constant number throughout the table
B
Which of the following statements regarding the effective interest method of accounting for bonds is false? a.GAAP requires use of the effective interest method. b.The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective interest method is used. c.Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method. d.The effective interest method applies a constant percentage to the bond carrying value to compute interest expense.
