F5/M5 Bonds: Part 2

Question 1

Amortization period is when the bonds are dated or outstanding (sold)?

Answer 1

Outstanding (sold)

Question 2

Straight line amortization is not GAAP, but is allowed if the results are not materially different from the effective interest method

Answer 2

Period amortization = Discount / Period

Outstanding

Question 3

(T/F): Straight line amortization results in a constant amount of interest expense each period

Answer 3

True

Question 4

(T/F): Straight line is not permitted under IFRS

Answer 4

True

Question 5

Calculate the interest expense under the Straight Line method of Discount/Premium amortization

Answer 5

Interest Expense = Coupon Payment (+) Amortization of Discount or (-) Amortization of Premium

Question 6

“Bond interest expense” for the bond issuer =

Answer 6

“Bond interest revenue” for the bond holder

Question 7

Bonds issued between dates requires what additional steps?

Answer 7

Bond purchaser has to pay for the accrued interest since the last interest payment, this amount is added to the price of the bond