CHAPTER 6: EFFECTIVE INTEREST METHOD Flashcards
What is the interest rate written on the face of the bond?
a. Coupon rate
b. Nominal rate
c. Stated rate
d. Coupon rate, nominal rate or stated rate
D
What is the rate of interest actually incurred?
a. Market rate
b. Yield rate
c. Effective rate
d. Market, yield or effective rate
D
When the effective interest method is used, the periodic amortization would
a. Increase if the bonds were issued at a discount.
b. Decrease if the bonds were issued at a premium.
c. Increase if the bonds were issued at a premium.
d. Increase if the bonds were issued at either a discount or a premium.
D
A discount on bond payable is charged to interest expense
a. Equally over the life of the bond
b. Only in the year the bond is issued c. Using the effective interest method
d. Only in the year the bond matures
C
Under the effective interest method of amortization, the interest expense is equal to
a. The stated rate of interest multiplied by the face amount of the bonds.
b. The market rate of interest multiplied by the face amount of the bonds.
c. The stated rate of interest multiplied by the beginning carrying amount of the bonds.
d. The market rate of interest multiplied by the beginning carrying amount of the bonds.
D
When interest expense for the current year is more than interest paid, the bonds were issued at
a. A discount
b. A premium
c. Face amount
d. An indeterminable amount
A
When interest expense for the current year is less than interest paid, the were issued at
a. A discount
b. A premium
c. Face amount
d. An indeterminable amount
B
Bond issue cost
a. Is included in the measurement of the bonds payable measured at amortized cost.
b. Is amortized using the interest method over the life of the bonds payable.
c. Will effectively increase the market rate of interest.
d. All of these relate to bond issue cost.
D
Bonds usually sell at
a. Maturity amount
b. Face amount
c. Present value
d. Statistical expected value
C
Which statement is true about bonds payable?
a. The specific provisions of a bond issue are described in a document called bond indenture.
b. Periodic interest expense is the stated interest rate times the amount of bond outstanding.
c. Bonds will sell for a premium when the market rate of interest exceeds stated rate.
d. The initial sale price of bond represents the sum of all future cash outflows.
A
When bonds are sold at a premium, at each subsequent interest payment date, the cash paid is
a. Less than the effective interest
b. Equal to the effective interest
c. Greater than the effective interest
d. More than if the bonds had been sold at a discount
C
When bonds are sold at a discount, at each subsequent interest payment date, the cash paid is
a. More than the effective interest
b. Less than the effective interest
c. Equal to the effective interest
d. More than if the bonds had been sold at a premium
B
When bonds are sold at a discount, at each interest payment date, the interest expense
a. Increases
b. Decreases
c. Remains the same
d. Is equal to the change in carrying amount
A
When bonds are sold at a premium, at each interest payment date, the interest expense
a. Remains constant
b. Is equal to the change in carrying amount
c. Increases
d. Decreases
D
Interest expense is
a. The effective rate times the carrying amount of the bond during the interest period.
b. The stated rate times the face amount of the bond.
c. The effective rate times the face amount of the bond.
d. The stated interest rate times the carrying amount.
A
