A bond is sold at $98 of its face value ($100). Therefore, the bonds are: A) Sold at a discount because the stated rate of interest was lower than the effective (market) rate B) Sold for the $500,000 face amount less $10,000 of accrued interest. C) Sold at a premium because the stated rate of exceeds the effective (market) rate. D) Sold at a discount because the effective interest rate was lower than the stated (coupon) rate.

A bond is sold at $98 of its face value ($100). Therefore, the bonds are: A) Sold at a discount because the stated rate of interest was lower than the effective (market) rate B) Sold for the $500,000 face amount less $10,000 of accrued interest. C) Sold at a premium because the stated rate of exceeds the effective (market) rate. D) Sold at a discount because the effective interest rate was lower than the stated (coupon) rate.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

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
The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest a. Less the present value of all future interest payments at the rate of interest stated on the bond. b. Plus the present value of all future interest payments at the rate of interest stated on the bond. c. Plus the present value of all future interest payments at the market (effective) rate of interest. d. Less the present value of all future interest payments at the market (effective) rate of interest.
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.
Refer to Chapter 10, page 567: Stated rate of interest versus the market rate of interest Required Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions: ____ The stated rate of interest is higher than the market rate. ____ The market rate of interest is equal to the stated rate. ____ The market rate of interest is less than the stated rate. ____ The stated rate of interest is less than the market rate. ____ The market rate of interest is higher than the stated rate
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.
When a company uses the the effective-interest method to amortize a bond discount amortization, the interest expense is equal to a) the market rate multiplied by the beginning-of-period carrying amount of the bonds. b) the market rate of interest multiplied by the face value of the bonds. c) the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d) the stated (nominal) rate of interest multiplied by the face value of the bonds.
This month Firm A repurchased 7.4 million shares of common stock at a cost of $820 million. One plausible reason for this is that the firm feels that its stock is undervalued at the current price. the firm feels that its stock is fairly priced at the current price. the firm needs a certain amount of money. the firm feels that its stock is overvalued at the current price.
When the effective-interest method is used, the amount of bond discount amortized eachinterest period is equal to thea. amount of interest expense less the cash paid for interest.b. amount of interest expense plus the cash paid for interest.c. face value of the bond times the market interest rate at the date of issue.d. face value of the bond times the stated interest rate.
For a bond issue that sells for less than its face value, the market rate of interest is a. Higher than the rate stated on the bond. b. Dependent on the rate stated on the bond. c. Equal to the rate stated on the bond. d. Less than the rate stated on the bond.
A bond is issued at a price of 103 and retired early at aprice of 97. Which of the following is true?a. A gain will be reported on the income statement whenthe bond is issued.b. A loss will be reported on the income statement whenthe bond is issued.c. A gain will be reported on the income statement whenthe bond is retired.d. A loss will be reported on the income statement whenthe bond is retired.
If the market rate of interest is greater than the contractual rate of interest, bonds will sell a. at a discount b. only after the stated rate of interest is increased c. at a premium d. at face value
6. Bonds that mature in installments are called term bonds. 7. A conversion feature may be added to bonds to make them more attractive to bond buyers. 8. The rate used to determine the amount of cash interest the borrower pays is called the stated rate. 9. Bond prices are usually quoted as a percentage of the face value of the bond. 10. The present value of a bond is the value at which it should sell in the marketplace. Instructions Identify each statement as true or false. If false, indicate how to correct the statement.