FAR 4 Module 5

Question 1

How does Incorrectly using the straight-line method instead of the effective interest method affect the carrying amount of bonds?

At 12/31/y1:
At 1/2/y7:

Answer 1

At 12/31/y1: Overstated
At 1/2/y7: No effect

Question 2

How does using the straight-line method instead of the effective interest method to amortize a bond premium affect the bond carrying amount and retained earnings at the bond’s maturity date?

Bond carrying amount:
Retained earnigns:

Answer 2

Question 3

How is interest payable on a bond calculated, and how does it differ from interest expense under the effective interest method?

Answer 3

Question 4

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

What is the JE?

Answer 4

Plus discount

Question 5

How would you make a table for the following to determine the amount of unamortized premium on bond?

Answer 5

Question 6

How does discount and premium amortization affect the carrying amount of a bond?

Answer 6

Question 7

What should a company report on the first interest payment date when it issues a bond with a stated interest rate less than the effective interest rate?

Bond issued at discount or premium?

Answer 7

Bond issued at discount