Day 2 - Bonds

Question 1

Define: lower of cost or market

Answer 1

In LCM, “market” is defined as the cost to replace an item subject to the max or minimum.

The max = Net realizable value

The minimum = NRV less a normal profit margin

Question 2

Interest PMT dates are May 1st and November 1st, and the bond was issued on June 1st. The amount of interest expense for the year at December 31st would be for how many months?

Answer 2

Seven months

Interest expense for bonds= for however long the bond is outstanding

MCQ-04488

Question 3

ABC Inc, neglected to amortize the premium on the Outstanding bonds payable. What is the effect 9n amortization of interest expense and bonds carrying value?

Answer 3

Overstated and overstated

Amortization of premium of bond payable reduces both interest expense and the carrying value

MCQ-04493

Question 4

When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid:

Answer 4

Plus discount

MCQ-05199

Question 5

Under the effective interest method the amortization of the premium recorded when the first interest payment is made equals:

Answer 5

The difference between the interest expense (Carrying Value × Mkt Rate) and the Cash Interest PMT (Face Value × Stated Rate)

MCQ-03984

Question 6

Under the effective interest method is used to amortize a bond at a discount, the ending carrying amount of the bond equals:

Answer 6

The beginning carrying amount
PLUS: the discount amortized during the current period

MCQ-05435

Question 7

Using the SL method, what is the amount of time the bond discount is amortized?

Answer 7

The total number of months it takes the bond to mature

MCQ-00517