F5 - M5 - Bonds : Part 2

Question 1

Bonds can be issued for more or less than their face amounts. If sold above the 100 face value, the excess is ________.

Answer 1

premium

Question 2

If Bonds are sold below 100, the difference is ______

Answer 2

discount.

Question 3

_________result from market interest rate fluctuation between the time the bond is printed and when it is actually issued,

Answer 3

Premium and discount

Question 4

Bonds are either amortized to interest expense using (2) methods (2)

Answer 4

the straight-line or effective interest method.

Question 5

_______ allows the straight-line method if the difference between the two methods is immaterial.

Answer 5

U.S. GAAP

Question 6

_____ requires the effective interest method for bonds

Answer 6

IFRS

Question 7

Under the straight-line method, interest expense is calculated as follows:

Answer 7

Period amortization = Premium/discount and bond issuance cost/ Number of periods bond is outstanding

Question 8

Under the straight-line method, interest expense is calculated as follows:

Answer 8

Interest expense = (Face value × Stated interest rate) – Premium amortization Or:
+ Discount and bond issuance cost amortization

Question 9

Under the effective interest method, interest expense is calculated as follows:

Answer 9

Interest expense = Carrying value at beg. of period × Effective (market) interest rate

Question 10

When bonds are issued between interest payment dates, the selling price includes the _______________.

Answer 10

accrued interest to date.

Question 11

When bonds are issued between interest payments dates, what is the JE

Answer 11

Dr Cash CR Bonds Payable CR Interest Payable DR. Cash

Question 12

Interest is accrued at year-end from the ________ date.

Answer 12

last interest payment date.

Question 13

Companies with many outstanding debt issues often report only one _______ total, which is supported by comments, and schedules in the accompanying notes.

Answer 13

one balance sheet total